Archive for the ‘Money’ Category

The Smoother Path to Wealth

Posted: September 21, 2012 in Money

Last time we discussed Putting the Simple Path to Wealth into Action.  That post grew out of a comment/question from reader KLR and, as I described, this gave me a chance to review how The Simple Path to Wealth might be implemented.

For a quick Simple Path review:

Spend less than you earn – invest the surplus – avoid debt

Do simply this and you’ll wind up rich.  Not just in money.

The investing part consists of two phases:

1.  Wealth Building.  This the time when we are working and saving/investing 50%+ of our income.  Since stocks are the most powerful wealth building asset class, and since a Vanguard Index Fund is the best way to own them, VTSAX is the chosen tool to get us there.

2.  Wealth Preservation.  At some point we’ll want to focus on preserving what we’ve built.  Typically, this comes when we begin to approach retirement.  For some this might be around the traditional age of 65.  For those that implement the 50%+ saving rate I suggest it could come much, much sooner.  

For this phase we’ll add a couple more funds to smooth things out.  (The details of this phase and the funds I recommend for it can be found in Post #9:  What we own and why we own it.)

What we have then looks like this:

Phase 1:  The Wealth Building Portfolio

100% = Stocks held in VTSAX

0-5% = Cash held in VMMXX (for upcoming expenses)

Phase 2:  The Wealth Preservation and Building Portfolio.

50% = Stocks held in VTSAX (growth)

25% = REIT  held in VGSLX  (inflation hedge)

25% = Bonds  held in VBTLX (deflation hedge)

0-5% = Cash held in VMMXX (for upcoming expenses)

With interest rates at record lows, you’ll notice both these approaches call for minimum cash.  In fact, I don’t even include the percent for in in the totals.  I keep mine in the Money Market Fund VMMXX and in my checking account.

While stocks, and by extension VTSAX, are the most powerful wealth building tool available they are also very volatile.  Before you take this step, I strongly advise you read my series on this starting with Stocks — Part I:  There’s a major market crash coming!!  Investing in VTSAX will make you rich over time, but make no mistake, it will be a wild ride.  Yer gonna have to be tough.

But what if you don’t want to put up with the gut wrenching ups and downs of the market?  What if you’d be willing to give up some performance to sleep better at night?  Is there a smoother path for you?

Reader/commenter COMatt put it well saying “Recently, I have found I can stick to my strategy better if I see at least something going up. Am I crazy to think this? I feel like everything in one fund will really test my nerves especially early on when I have little emotional investing experience.”

Matt’s not crazy at all and, yes, there is a smoother path.  It might get you there a bit more slowly, but that’s ok.  What’s far more important is that you:

Spend less than you earn – invest the surplus – avoid debt

So what is the magical smoother path?  Well, at the risk of being anticlimactic, it is simply this:

Implement Phase 2 from the start.

Remember, Phase 2 is designed for wealth preservation while still offering growth.  Moreover, you can customize it.  Want a still smoother, but slower, ride?  Just increase the percent you hold in VBTLX, the bond fund.  Want more growth?  Increase your stock percent with more in VTSAX.

Now in implementing Phase 2 we’ve strayed into what is called Asset Allocation in the investment world.  Done right, it is a very useful thing.  But it requires a bit more work.  Namely, about once a year, you’ll want to rebalance your funds.  Many folks do this on their birthday so it’s easy to remember.  So what the heck is rebalancing and how is it done?

Let’s suppose you choose the same 50%-25%-25% allocation I use.  On your birthday next year you take a look at your three funds.  Perhaps stocks have had a bad year and VTSAX has lost value.  In the process, it is now only, say, 40% of your portfolio.  Meanwhile your bonds and REIT are now each 30%.  Your allocation has shifted.  To rebalance you simply sell enough of the bond and REIT funds to return them to 25% each and reinvest that money into VTSAX returning it to 50%.

In the process, over time, you will have in effect bought low and sold high, without having to predict what the market is going to do.  This improves performance and provides the smoother ride.  Most times, as reader Matt looks for, you’ll be able to point to something going up.

To be clear, this is not to say there will be no bumps.  Sometimes all three will head down and at other times they’ll march up arm in arm.  But even then they’ll each drop or rise at differing rates.

Here at jlcollinsnh we know the advantages of keeping things as simple as possible, but most Asset Allocation strategies use far more than just three funds.  The most common addition is an International Stock and/or Bond fund.

Next post,  Stocks — Part XI:  International InvestingI’ll talk about why I don’t feel the need to add these funds.  I’ll also recommend the two best to use if you decide you want to.  Shortly after that I’ll post telling you about Target Retirement Funds which offer asset allocation with minimal effort.  We might call these the “Even Simpler Smooth and Simple Path.”  Stay tuned.

For more check out:  Stocks — Part VI:  Portfolio Ideas to build and keep your wealth.

There you go.

Whether you choose the wild and powerful ride or smooth sailing — if you avoid debt, spend less than you earn and invest the surplus — Financial Independence will be yours.  At that point you’ll need to worry about how to spend all the money your money is making for you.  You might even want to start to Give Like a Billionaire.

This blog launched in the Spring of 2011.

Post #4 was  Why you need F-you money. Post #6 presented The Simple Path to Wealth to get you there and Post #9, What we own and why we own it, told you how we keep ours.  Almost everything else on the subject of money has been an elaboration of the tools and ideas introduced in these three.

One of the most gratifying aspects of writing is reading the comments and, on occasion, being able to answer a question or two.  Some of the best material is in the comments section.

The Simple Path, and indeed the blog itself, grew out of a letter I wrote to my then 19-year-old daughter.  She doesn’t share my fascination with finance and investing.  Most people don’t.  But in this modern world of ours, money is crucial.  I wanted her, and now you, to have simple but highly effective investing tools.  The ideas here are designed to provide a lifetime of successful investing with minimal effort and cost.  They are for those who have better things to do with their time.  The cool thing is, that when it comes to investing, the correct minimal effort actually produces better results than labor intensive strategies.

Of late I’ve been toying with the idea of a post that showed what rolling out and living with this approach might look like.  All I needed was to create a fictional young investor about to begin their journey.  That’s when reader KLR saved me the effort and provided the motivation by posting a comment/question here.

For the purposes of this post, I emailed KLR with some follow-up questions.  I’ve taken the liberty of adding his responses into his original note below, but all the words are his.

His note and my reply follow.

“Jim,

I stumbled onto your blog this week and have caught up with all your money posts. I would like to say that your guidance has probably saved me months of research and lots of frustration. Thank you for the great topics, but I am now trying to figure out my plan and my head is spinning.

I’m 26 and have recently graduated from college, and decided to get my financial life in order. Luckily, I was able to find a great job and have no debt. I am working on saving up my emergency fund (roughly 24% of my income is going into it) and now focusing my efforts on investments.

I was also lucky that my grandparents seeded an investment fund for all of the grandchildren when each was born. It has been managed by a financial advisor for years, and your posts have confirmed my thoughts that I can do better. It currently has around $35,000 in it in 12 different mutual funds.

I talked to my grandmother and she doesn’t remember the exact amount that started my account. Whenever a new grandchild was born, she would put a starting amount in equal to what was in the older children’s accounts. The earliest records I have is from 1994. At the start of that year, there was approx. $6700 in the account and a $1000 was added by my grandparents each year until the it hit around $25,000. In 1994, the funds were half stocks and half bonds (my grandfather grew up during the great depression and didn’t really trust full stocks).

Next June, I will be eligible to enter my employer’s 403(b) plan and also a pension plan. I am able to put 3% of my income into the 403(b) plan and they match with 2.5%. It looks like I will be able to enroll in Vanguard’s total stock market index fund. There is also an optional traditional IRA plan that I can contribute up to the maximum allowed by the IRS. It seems that after learning more about all of this, the 5.5% of my yearly salary into my 403(b) is nowhere the maximum allowed by the IRS, which is a little discouraging.

I make $70k per year before taxes. Right now I’m saving 24% of my pay. My goal is to keep it at 20% or more, but realize I might have to drop to 15% if other commitments arise. I haven’t really thought about when I want to retire. It would be great to retire early, but I have not officially set that goal yet. I just know it is important to get everything lined up to get ready for retirement and that is what I am trying to do now.

I don’t think I’m going to do the optional IRA account and instead do a Roth IRA on my own. What is your suggestion on getting rid of my financial manager and all the mutual funds and buying into VTSAX? I don’t fully understand the tax implications that are involved in that. Correct me if I’m wrong, but $5000 would go into the Roth and the rest into a traditional account. I think I know the answer, but do you think it is fine to have the investments in my 403(b), Roth IRA, and my regular account in VTSAX?

What is the best way to contribute to my funds? After I get my emergency fund built up and my money transferred to vanguard, I will have around $1000 per month. Do I put that in each month or wait to put in larger amounts. I have heard of dollar cost averaging, but haven’t looked into it too much. Thanks again for your advice and time.

Sorry for the long post, but any assistance would be greatly appreciated.

Thanks

KLR”

He also kindly added a link to his employer’s benefits page, but asked that his employer’s name remain confidential.  Looking at that page, what he refers to in his note as “an optional traditional IRA plan” is an SRP.

Welcome KLR….

….glad you found your way here and delighted to hear you’ve found some value.  Plus you’ve given me a great opportunity for another post!

You mentioned that you’ve read thru the money posts so we can go forward assuming that base of knowledge.  For those newer readers following along I’ll provide links to some relevant posts, as I did above.

But before we get started, some congratulations are in order.  No, not for you.

For your grandparents!!

They deserve big time major league kudos.  Please tell them I said so.

The fact that they have provided this seed capital for you and their other grandchildren tells me several things.  They have resources, and that means they are fiscally responsible and effective in their own lives.  They are generous.  And, considering your questions and plans, clearly they have passed it on to their descendants.  If you haven’t already, take them out to dinner and raise a toast in their honor.  Even if you have, do it again.

In managing this money it is no surprise they choose an investment advisor.  As you know, I don’t like investment advisors, but back in the day there weren’t many options and given the results you describe, they chose well.  Still, thanks to Jack Bogle and with Vanguard Index Funds you are ready to move on.

Looking at your situation we have a great base upon which to build:

1.   35k in capital to start.

2.   70k salary and you are saving 24% (17k annually) of that for your emergency fund.

3.   You want to target saving about 20% going forward, or 14K.  I’ll try to persuade you to increase that.

4.   You’ve landed a good job with an employer that provides some excellent retirement plan options.

5.   No debt.

6.  You’re not sure about retirement yet, no surprise at age 26, but you recognize the importance of F-You Money.  We’ll focus on getting you there.

7.  You want to know how to contribute to your investments going forward and about Dollar Cost Averaging.

Mmmm.  Looking at that list, you deserve some kudos too!

Let’s talk first about what investment to choose.  

Fortunately, with your employer’s benefits plan Vanguard is an option.  You are leaning toward Vanguard’s Total Stock Market Index Fund and you are spot on. This is where we’ll put all of your investments.  You are in the Wealth Building phase of your life and this is the right tool for the job.

There are three options to owning this fund:  Admiral Shares, Investor Shares and as an ETF (Exchange Traded Fund). VTSAX is the Admiral version and provides the lowest cost, but has a 10k minimum.  Investor Shares, VTSMX,  holds the same stocks, but with slightly higher costs and a 3k minimum.  Use Admiral whenever you can and Investor if you need to as a start.  You can switch to Admiral when you clear the 10k hurtle.

This one fund will give you a portfolio that owns virtually every publicly traded company in the USA.  Since many of these have extensive international operations, you also have international market exposure.  With this one investment you’ll have broad diversification in the most powerful wealth building asset of all:  Stocks.  This allocation of 100% stocks is considered a very aggressive and that’s what we want for this phase.  But be warned, as you know from reading my series on stocks you can expect a wild and gut wrench ride.  But you’re going to stick to your plan, keep investing and tough it out.  You have decades ahead.

At some point you’ll start thinking about retirement.

Maybe when you’re 65 or maybe when you have F-you money around 35 or so.  Whenever the time comes, as you approach that phase you’ll want to consider diversifying into other asset classes.  This is where Mrs. jlcollinsnh and I are in our lives and I’ve written about what we own and why we own it.  But right now you are in the wealth building phase.  Stocks are where you want your money and VTSAX is how you want to own them.

Next let’s look at the various Investment Buckets you have available and discuss how to allocate your VTSAX investment.  Basically you have four and in each will be a separate account, all invested in VTSAX/VTSMX.  In order of desirability they are:

1.  403 (b).  Since you work for a university you have a 403 (b) and your employer had the wisdom to engage Vanguard as one of the plan providers.  (Readers working for companies have much the same but it is called a 401k.)  You’ll contribute 3% of your salary, which will be tax deferred, and your employer matches 2.5%.  That’s free money!  That makes this option #1.

Since your total for the first year will be about $3850 you’ll probably start with VTSMX, but check.  Because it is a 403 (b) plan, and by definition long-term investment money, Vanguard might waive the 10k minimum for VTSAX.

2.  Roth IRA.  You should put the maximum allowed into your Roth each year:  $5000.  While you get no immediate tax deduction with a Roth, when you retire all distributions are tax free.  That includes everything your Roth earns over the decades.  Very cool deal.  Everyone should have a Roth, especially when you are young and in a low tax bracket.  Rather than using part of your 35k stake, I suggested you fund your Roth with money from your earnings.  You’ll be doing this every year.

3.   SRP (Suplemental Retirement Program).  This is an additional program your employer offers and the IRS allows you to contribute up to $17,000 each year.  No company match, but you get a tax deferral on the contribution.  It is a very attractive benefit.

4.  Ordinary Bucket.  This is what I call regular investments made outside any tax advantaged bucket like the first three.  You’ll pay taxes on the dividends and capital gains distributions but, unlike tax advantaged accounts, your money is available anytime with no penalty.  This is where your 35k is now and when you move it to VTSAX that will still be the case.

When you sell the 12 funds you currently own, assuming they have appreciated in value, you will owe a capital gains tax.  Don’t lose sleep over this.  Cap gains taxes are low at the moment.

A bit later we’ll talk about how much goes into which bucket, but first

…let’s discuss a couple of things:

1.  Your savings rate is currently 24% as you are building your emergency fund, and you plan to reduce this to 20%.  Compared to the average American these percents are excellent.  Compared to where you want to be, you should consider doing more.  50% is my suggestion, but others more committed to having F-you money commonly reach for 70-80%.

You are already stepping out of the norm by being debt free, saving and investing.  You are employed, young and childless.  Never will you be in a stronger position to take it to the next level.  At the very least, avoid “lifestyle inflation” by pledging that any salary increases will go towards your investments.  Do this now and in the future your problem will be how to spend all the money your money earns for you.

2. Your emergency fund, if you are following standard investment advice, is likely too large.  Keeping a few grand around is fine, but if you are trying for six months of income (35k in your case) you are tying up money that should be working harder for you.

OK, with all that under our belt let’s run some numbers and look at specifics.

Option #1, 24% savings rate.

You start with the $35,000 from your grand parents.  Move that immediately into VTSAX.  Pay the cap gain tax, if any.  On average over time the market returns 10-11% annually.  At that rate your money doubles about every 7 years.  By the time you are 61 it will have doubled 5 times.  A quick back of the envelope calculation shows you’ll have around $1,120,000.  Without adding a single penny.  Wait till you’re 68 and it’s $2,240,000.  That’s the power of compounding.  Did I mention you should take your grandparents to dinner?

If you add to it as you go along, as you’re going to, and the results become even more powerful.

Already I can hear the naysayers howling:  From 2000-2008 the market wasn’t anywhere near a 10% return.  True enough.  But from 1982 until 2000 returns blew past 10% and averaged around 18% per year.  Since the Spring of 2009 the market has just about doubled.  The fact is, in any given year, it is exceedingly rare that the market will specifically return 10-11%.  But that’s not what we’re saying.  10-11% is the average we can expect over a 20, 30 or 40 year span.  Each individual year will vary wildly.  Which, as we’ve said before, is why you gotta be tough.

Moving on, if we use your current savings rate of 24% you’ll have $16,800 to invest each year.

Your 403 (b) gets 3% of your $70,000 salary.  $2100.  (The university will add 2.5%, $1700, but that’s in addition to your 24%/16.8k investment money.)  This will go into VTSMX and then to VTSAX when the balance goes over 10k.

Your Roth IRA gets $5000, also in VTSMX and moved to VTSAX once over 10k.

So between the 403 (b) and the Roth we’ve accounted for $7100, leaving $9700 to invest.  Because you have the 35K, I’d put this into VTSAX in the tax advantaged SRP (Supplemental Retirement Program).  For somebody without anything outside of tax advantaged accounts, I’d split it so some money is available without penalty in an “ordinary bucket” account.

Option #2, 50% savings rate.

Again you start with the $35,000 from your grandparents, but now from your salary we have another $35,000 each year to invest.

As before your VTSMX 403 (b) gets 3% of your $70,000 salary.  $2100.  This is the max you can contribute. (The university will add 2.5%, $1700, to that but that’s in addition to part of your 24%/16.8k investment money.)  This will go into VTSMX and then to VTSAX when the balance goes over 10K.

Your VTSMX Roth IRA also still gets the max at $5000.

So between the 403 (b) and the Roth we’ve again accounted for $7100, but now leaving $27,900 to invest.  With this we can take full advantage of all the options your employer offers and max out the tax advantaged SRP (Supplemental Retirement Program) with $17,000 into VTSAX.  That leaves $10,900.  We’ll add that to VTSAX in the Ordinary Bucket and build on $35,000 seed capital your grandparents so generously provided.

Psst.  He’s going for Option #2.

Finally, let’s talk about how these contributions will happen.

To begin we’ll take a look at Dollar Cost Averaging.  Simply speaking the idea behind DCA is that if you invest a given amount of money on a regular basis over time the effect will be to have bought shares at a lower average price.  This is because when prices are high your money will buy fewer shares than when prices are low.

For example, suppose we decide to invest $100 per month in XYZ Enterprises:

  • Month #1 with XYZ trading at $10 per share our $100 buys 10 Shares.
  • Month #2 with XYZ trading at $5 per share our $100 buys 20 Shares.
  • Month #1 with XYZ trading at $15 per share our $100 buys 6.67 Shares.
  • Month #1 with XYZ trading at $7.50 per share our $100 buys 13.33 Shares.

If my math is correct, we now own 50 shares of XYZ @ $8 per share on average.  Thus we have avoided paying $10 a share had we bought all at once.  Of course, some will argue that had we waited a month we could have picked up the shares at $5 each.  But this would have required our knowing they’d drop to that level (before bouncing up to $15) in our example.

There is much debate on the usefulness of DCA and for any readers who might care you can click on the link. Moreover, it only really applies if you have a lump sum to invest.  My preference, with a lump sum, is to invest all at once.  I can’t be sure prices will move down to my advantage and if I DCA the money waiting is sitting in cash (or some other asset class) effectively altering my plan.  I want my wealth building phase to be fully engaged with the most powerful asset class of all:  Stocks.  This is what I am suggesting for your lump sum of 35k.

Like most people, you’ll also be investing as you can over time.  Effectively DCAing.  You’ll be doing that with your 403 (b), SRP and Roth accounts, as well as any additional money you add to your Ordinary Bucket VTSAX initially filled with the 35k.

The beauty of your 403 (b) and SRP accounts is that once you set them up, the contributions will happen automatically.  The Roth and Ordinary Bucket VTSAX will require you to expend a bit more effort.  You’ll either have to add to them just like you pay your bills or you can set it up with Vanguard to have the money automatically transfer.  Automatic’s what I’d do.

There you have it.  Follow this….

…simple path…

…and before you know it you’ll have F-You money and working will be an option.  By the time you are your grandparents’ (did I mention you should take them to dinner?) age you will have provided seed money accounts for your own grand kids, continuing the cycle.  Around then you might also consider learning how to give like a billionaire.

Enjoy the journey and check in once in a while and let us know how it’s going.

Cheers,

Jim

“If you reach for a star, you might not get one.  But you won’t come up with a hand full of mud either”

— Leo Burnett

“Never be haughty to the humble.  Never be humble to the haughty.”

— Jefferson Davis

“The reasonable man adapts himself to the world:  the unreasonable one persists in trying to adapt the world to himself.  Therefore all progress depends on the unreasonable man.”

“Life isn’t about finding yourself. Life is about creating yourself.”

“Lack of money is the root of all evil.”

–G.B. Shaw

“The tide is high but I’m holding on.”

–Blondie

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.”

– Will Rogers.

 “But at my back I always hear Time’s winged chariot hurrying near.”

“Gather the flowers, but spare the buds.”

Andrew Marvell

“Learn to drink coffee without sugar.”

“You’re better off missing a bus or an airplane once in a while than getting there too early all the time.”

“Don’t expect too much from the company you work for, even if it’s a good company.”

–Andy Rooney

“If you would take, you must first give.  This is the beginning of intelligence.”

— Tao Te King

“Being able to do something well is one of life’s great joys.”

— Frank Tyger

“It’s hubris to think that the way we see things is everything there is.”

Lisa Randall

“The sweaty players in the game of life always have more fun than the supercilious spectators.”

— William Feather

“We are all imbued with the love of praise.”

— Henry Fielding

“I have never considered a difference of opinion in politics, in religion, in philosophy as a cause for withdrawing from a friend.”

— Thomas Jefferson

“We choose our joys and sorrows long before we experience them.” 

— Khalil Gibran

“Those who are easily shocked should be shocked more often.”

Mae West

“No one agrees with other people’s opinions, they merely agree with their own opinion expressed by somebody else.”

— Sydney Tremayne

“You can’t build a reputation on what you are going to do.”

— Henry Ford

“Consider the mosquito.  He sings at his work and he keeps everlastingly at it.  The only way to stop him is to kill him.”

— JT Fisher


“I am an old man and have known a great many troubles, but most of them never happened.”

“A man cannot be comfortable without his own approval.”

“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.”

Mark Twain

“Women who seek to be equal to men lack ambition.”

— Marilyn Monroe

“Simplicity is the keynote of all true elegance.” 

— Coco Chanel

“Do not anticipate trouble, or worry about what may never happen. Keep in the sunlight.”

“If you would be wealthy, think of saving as well as getting.”

 “Content makes poor men rich; discontentment makes rich men poor.”

— Ben Franklin

“Wisdom comes from experience. Experience is often a result of lack of wisdom.” 

–Terry Pratchett


“He has all of the virtues I dislike and none of the vices I admire.”

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

“Ending a sentence with a preposition is something up with which I shall not put.”

Winston Churchill

“But there’s also no doubt that many people, with fewer advantages than you, have overcome them to achieve much greater things”

— Mr. Money Mustache

“One of the greatest follies of our culture is the notion that possessions depict financial progress in your life.”

— Shilpan

“Why would I want to spend all my money on ‘stuff’ when I don’t even own my own time yet?”

Dividend Mantra

“I don’t think anything is ever quite the same to us after we are dead.”

— Don Marquis

“Never allow a person to tell you no who doesn’t have the power to say yes.” 

— Eleanor Roosevelt

“If you obey all the rules, you miss all the fun.” 

Katharine Hepburn

“The purpose in life is to be defeated by greater and greater things.”

–Rainer Maria Rilke

“It ain’t too hard to get along with somebody else’s troubles.”

–Steve Goodman

“In misfortune, which friend remains a friend?”

–Euripides

“Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy.”

Groucho Marx

“People who think they know everything are a great annoyance to those of us who do.”

–Isaac Asimov

“Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.”

– John Allen Paulos.

“Let go of your attachment to being right, and suddenly your mind is more open. You’re able to benefit from the unique viewpoints of others, without being crippled by your own judgment.” 

— Ralph Marston

“We are what we pretend to be, so we must be careful what we pretend to be.”

— Kurt Vonnegut


“Life shrinks or expands in proportion to one’s courage.” 

Anais Nin

“In the end, it’s not going to matter how many breaths you took, but how many moments took your breath away.”

— Shing Xiong.

“To be without some things you want is an indispensable part of t happiness.”

— Bertrand Russell

Oh, and I think I’ve turned a worthy phrase or two:

Spend less than you earn – invest the surplus – avoid debt

You own the things you own and they in turn own you.

If your lifestyle matches or, god forbid exceeds, your income you are no more than a gilded slave.

As individuals we only have one obligation to society:  

To make sure we, and our children, are not a burden to others.                           

 Do you have your own favorites?  Maybe even turned a couple yourself?  Please share in the comments….

In 1974 my dad died.  I was 23.

(Didn’t expect the Happy Birthday post to begin there, I’ll bet!)

He never had much interest in kids so our relationship didn’t really begin to develop until I was in college and could relate to him as an adult.  Of course, by then I had my own circle of interest and a very busy life.  Looking back, I never really got to know him.  It is a lasting regret.

I know the basics of course.  He was born in 1911 in Duluth, MN.  His father was a lawyer.  His mother died when he was two.  His step mother evidently didn’t care for him.  He was sent to boarding school in the winters and to his Aunt Jessie and Uncle Ben’s farm in the summers.

He took his degree in Chemistry at the University of Wisconsin and his first job was selling for 7-Up.  My mother was a school teacher when they met and since she wanted to keep working they married in secret.  In those days only single women could be teachers.

Her father had a business as a manufacturers’ rep.  Her brother, my Uncle Linton, and my dad took it over.  They were very good at what they did and earned a handsome living for many years.  But dad, like many men of his generation, was a smoker.  By the time I got to college his health and, by extension, his business were failing rapidly.

My daughter and I have had a much closer relationship.  She knows far more about me, what I believe and why.  But now in college she, too, has her own circle of interest and a very busy life.  So a couple of years ago I began writing some letters to her.  Life lessons if you will.  Things I wanted her to know that she might not be yet ready or interested in hearing just yet.

Then last year I retired….

 ….leaving behind my business friends and colleagues, and wondering how best to stay in touch with them.

Those two goals in mind, the blog idea occurred.

I had never read a blog.  I had never seen one.  I barely knew such things existed.  But I asked around and got pointed to WordPress.

Poking about, I managed to cobble together the format you see here and I started writing.  June 2, 2011 The Monk and the Minister appeared.  My first post.  I sent the link to my friends and family.  The name jlcollinsnh was chosen so they’d know it was me.

Over the next month I posted 17 more before disappearing to Ecuador for the summer.  The blog went dark until I returned with the appropriately named Lazy Days in late October.  Since then I’ve published about two posts a week as ideas and interest come.

Today jlcollinsnh is one year old.  The blog, that is.  It seems it is customary on this august occasion for bloggers to post a review of the year just past.  So, here goes….

As of last week:

  • 50 posts, an average of just about one per week.
  • 41,752 total page views, a little more than 800 per week.
  • 928 page views on my single busiest day.
  • 66 subscribers, although I’ve come to learn regular readers have other ways of accessing it too.
  • 502 comments.

But then, last Saturday, everything changed.

an early present from MMM

Mr. Money Mustache published my guest post on his far more popular site.  What I thought was going to be just a bit more work for me turned out to be a huge gift to this modest little blog.

In just the past week:

  • Just 1 more post.
  • 31,852 more page views.
  • 6811 page views last Sunday alone, the busiest day.
  • 110 additional subscribers.
  • 267 additional comments.

It has been nothing short of breathtaking.  So now, on the blog’s one year anniversary, here’s where the totals stand:

  • 52 posts, including this one
  • 73,604 page views.
  • 6811 page views on the busiest day.
  • 176 subscribers.
  • 769 comments.

But what really made my day is the incredible warmth and kind words in those comments.  Boy howdy.

So a big “Thank You!” to all my loyal readers and an equally big “Welcome!” to all of you who have found your way here this past week.

With out you, this blogging thing would just be so much talking to myself.

Here’s what I learned along the way:

I picked the wrong name.

While jlcollinsnh works fine for letting friends and family know it’s me, it really doesn’t properly brand the blog as what it is.  Most have descriptive titles that help potential readers know what to expect.  But I’ve grown fond of it.  It’s not going to change.

I picked the wrong category (s).

Business – Life – Money, works fine in describing what I cover here.  Although, given the posts, it should be:  Money — Life — Business.  Successful blogs seem more focused.  But I like the freedom to range about my topics.  That’s not going to change either.

There’s no money in it.

The good news is that it costs nothing other than time and effort to do this.

I did just learn that some of you may be seeing ads here.  They never appear on my version.  WordPress tells me they place these and it provides revenue to them.  That, in turn, provides their hosting service to me for free.  Works for me; hope they aren’t a distraction for you.

But, there might be a book in it.

I’ve always wanted to write a book but have never had the discipline to sit still and crank out the chapters.  The blog has provided the structure, and the response from readers like you the motivation, to write.  Slowly the material is accumulating.  The next step will be to organize it and give it a rewrite so it flows.  We’ll see…

There could be money in it.

But not much.  I’m only just beginning to learn there are ways to monetize it, but it seems the amounts are minimal without a far, far larger audience.

I could be doing far more to build the audience.

Twitter, Facebook, LinkedIn, lifehacker, reddit, yakezie are all apparently venues that would drive traffic, but I do none.

So far what readership the blog has, has grown organically.

With a big boost from MMM.

A few weeks ago I received a private email from Mr. Money Mustache.  He runs one of my very favorite blogs.  Indeed, I have often thought that if I had had access to such wisdom at the start of my financial journey I’d have gotten far further far faster.

But, alas, when I started the internet was yet to be and computers filled buildings that took up entire city blocks. ILLIAC was one of the first and while at the University of Illinois I took a course that allowed access to it.  After watching it being programmed with laboriously prepared punch cards to perform simple calculations I remember walking out thinking:  “Clearly this is a technology without a future.”

One of the many reasons I’m not Bill Gates.

ILLIAC

Anyway, in his email Mr. MM said several very kind things.  Of them all,

“skilled with swear words”

brought the biggest smile to my face.

After the butter, he proposed that I write a guest post and he gave me some guidelines.  Basically, he was looking for a geezer perspective. Since I have a tremendous amount of respect for what he does over there I agreed.

Oh, and access to his huge audience played a role.

The post is titled:

It has Never Been About Retirement

I hope you’ll check it out.  While you’re there, take some time to poke around MMM.  Great stuff, well worth reading.

I do.

Elvis and “You can eat my Vindaloo.”

If we had ads like these I wouldn’t fast forward thru the commercials.  I’d also buy me some New Walkers Poppadums.  Bet you can’t watch it just once:

http://www.youtube.com/watch?v=QduTLFILORY&sns=em

My pal Trish is a whip smart, drop dead gorgeous international entrepreneur.  She’s lived and traveled all over the world.  She fled the Iranian revolution with the clothes on her back only to settle in Liberia as that country went up in political flames.  The first night her new home was invaded by machine-gun toting rebels.  I still remember a line from one of her letters written during the monsoons:  “Never in my life have I seen so much vertical water.”

Trish’s self portrait

I met her when she and Wolfgang kidnapped me in Ireland. Now I come to find out she’s an artist to boot.  Who knew such an intense life could lead to such graceful drawings each with its own little tale:

http://www.flickr.com/photos/trisharay/

Her eldest son is a film maker.

La Nina del Desierto

  I see shades of the Coen Brothers in this one:

http://www.mmrempen.com/films/lanina.html

Always had a soft spot for Ms. Blondie:

http://www.youtube.com/watch?v=ppYgrdJ0pWk

Good advice sung by an angel:

Life is beautiful that way:

http://www.youtube.com/watch?v=Ds5A-zAck54

Life can be tough, brutish and harsh.  When it gets that way for me I listen to this guy:

Israel Kamakawiwo ‘Ole

http://www.youtube.com/watch?v=y5JicO2bKec&feature=related

No matter what your political views this is worth the five minutes it takes.  Laugh out loud funny political animation even if you have to laugh at some of your own guys:

http://www.youtube.com/watch?v=3h8O7V-WxWQ&feature=youtu.be

Let take a ride on the Space Shuttle.

Crank up your volume so you can hear all the spooky sounds.  Oh, and just to make it interesting, let’s ride on the outside:

http://www.youtube.com/watch?feature=player_embedded&v=2aCOyOvOw5c

 

The 1975 novel, A Canticle for Leibowitz, is set several hundred years after our civilization has annihilated itself in a nuclear Armageddon.

The survivors have been reduced to the stone age and have slowly begun to rebuild. Monks now keep and try to decipher the scrapes left. The most precious of all is a bit of writing, the only such to survive. Truly, they believe, the key to the past and its secrets are here.
Endless hours of scholarship are invested in its study.  Towards the end the author shares it with us. It is a grocery list: Bread Milk Cheese Beer.  Think I’ve just ruined the ending for you?  Read the book.  And remember, anything you write could all that’s left when we’re gone.

I’ve been planning a post on Gold for a while now.  My pal Mr. 101C beat me to it.  You can read his thoughts and a couple of my comments here:

http://www.101centavos.com/2012/04/05/gold-as-an-investment/

It has been awhile since I’ve written a purely business post. Shilpan’s got it covered:

http://www.streetsmartfinance.org/2012/04/01/5-keys-to-win-customers-for-life/

His insights on the business of life make him one of my favorite bloggers and here’s another reason why:

http://www.streetsmartfinance.org/2012/03/27/7-habits-to-live-happy-life-with-less/

One of my few regrets in life is that my career never led to an international posting.  With any luck my retirement will.  Mr. Stoic provides some inspiration here:

http://thestoicinvestor.com/2012/04/05/changing-your-life-by-working-abroad-the-fun-stuff/#comment-244

Here’s a unique take on how to tell your body, “Hey!  I’m not ready to die yet!”:

http://dollardisciple.com/choose-growth/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+dollardisciple+%28The+Dollar+Disciple%29

The recent mega-lottery had the hopeful in a tizzy.  Let’s do a little quick math.  The jackpot was 640m.  Assuming you took the cash option, that would be cut in half:  320m.  Then the tax man takes his share(s).  The Feds will want 40%.  State and local depends on where you live, but let’s call it 8%.  That leaves you 52%:  166m.  No small sum, but not the half a billion everybody was throwing around.

Anyway, Mr. MM asks:  What would you do with way more money in his always insightful style.  Be sure to read thru the comments.  I haven’t done the calculation but, excluding those who would invest it, my guess is you’d be hard pressed to spend even 10m meeting every desire listed.

Every young person starting on their fiscal journey should read this:

http://money.ramblingfever.com/2012/04/investing-101-magic-concept-that-grows.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+RamblingFeverMoney+%28RamblingFever+Money%29

“There is no good excuse for anybody to not retire a millionaire.  It is not that hard to save $2,000 per year.”

Finally, in the comments section of this post  http://www.mrmoneymustache.com/2012/04/06/get-rich-with-nature/#comments you get to see jlcollinsnh called a “totally wrongheaded ultra-naturist.”  I’ve been called a lot of things over the years, but this is a first.  Kinder than most, too.  Oh, and the post is a great read.

You, too, can be conned

Posted: March 9, 2012 in Life, Money

I made an enemy this week.

She is the widow of an old friend.  Before he died, I promised to try to look out for her a bit.

During our recent conversation she said I made her feel small.  She said I made her feel stupid. There were tears. I’m very likely guilty on both counts.  I’m not always tactful.  But, hopefully, I saved her two million dollars.

Her husband died a while back.  Over the years he worked hard and had acumulated the aforementioned $2,000,000.  He loved his wife dearly and he knew he would very likely leave her a widow.  The money was an act of love.  He wanted to be sure she would be financially secure.

But he also knew three things that scared him no end:

  1. His wife believed in the “free lunch.”  That is, she was always open to come-ons.  Free cell phones were an example.  Every time their cell phone contract expired the provider offered a “free” cell phone which she proudly grabbed.  Somehow she seemed to miss the two year contract it locked them into, over and over again.  While small potatoes, it is a bad sign.
  2. The world is filled with predators looking for precisely people like her.
  3. Money and this belief in the “free lunch” attracts them like sharks to blood in the water.

It was this topic that set me off and brought her to tears.  I was trying to gently coax her into appreciating the risk.  She is a very bright woman and seemed to understand.  But then she said, “Don’t worry.  I can’t be conned.”

“With that you have,” I said (and by this point my voice I fear was raised) “just violated the first rule of not being conned!”

Make no mistake.  You can be conned.  So can I.

Here’s one I came across many years ago.  Fortunately I read about it.  In those days, I might well have taken the bait.  Here it is:

One day you get a letter, or maybe these days an email.  In it, an investment advisor introduces himself and  offers you a stock tip.  ABC Corp is going to dramatically rise in price over the next week or two.  Don’t invest, he cautions, without doing your homework.  But his proprietary metrics are pointing to this one as a strong buy.

You’re no fool but you decide to maybe keep an eye on it.  Just to see.  Sure enough, it sharply spikes up.  You could have made 50, 60, 100% on your money in a just couple of days.  Damn.  Letter 2 arrives.

This one says, BCD Corp is poised to take a sharp fall.  Our metrics, it says, say short (shorting is  a way to sell stock you don’t own on a bet it will decline in price) this stock.  You are a careful investor.  Again you decide to watch and see, although with a keener interest now.

Sure enough, this one collapses as predicted.  Had you acted, big profits would have been yours.

Letter #3 arrives.  Then #4, #5 and maybe even #6.  Each is dead on.  The stock rises, or falls, exactly as predicted.  Maybe you even took a chance and profited from one or more.  Hard not to be impressed by now.  I would be.

Then you get an invitation to dinner at one of your area’s finer restaurants.  You and a hand full of other “executive level investors” are invited to an informal meeting with Mr. Hasn’t-Missed-One-Yet.  He’ll be discussing his proprietary investment metrics and how they’ve made him rich.

At dinner, Mr. HMOY is soft-spoken.  He is warm, kind and concerned.  He has all the trappings of wealth, but in a tasteful, understated fashion.  Charts and graphs are presented.  The exact investment approach is unclear, but then it is proprietary.  This is to be expected.  Oh, and barely mentioned in passing, it just so happens a couple of slots remain open in his latest investment pool.  There is certainly no obligation but, of course, “based on our experience” they will be snapped up by tomorrow.  So, if you are interested….

Can you see the trick?  (and like all magic, it is a trick) If you can and this is the first you’ve come across it, you are a better man than I.  But don’t get cocky.  If not this one, there’s another that will fly under your radar.  In can happen to you.  Fail to understand this and it will.  That’s the first rule.  Here’s the full set:

Rule #1:  Everybody can be conned.  Certainly stupid people are marks.  But so are the exceptionally bright.  The moment you start to think that it can’t happen to you, you’ve become a most attractive target.  The easiest victims are those that think they are too smart, too knowledgeable to be taken.  This means you, bucko.

Rule #2:  You are likely to be conned in an area of your expertise.  The reason is simple:  Targeting and Ego.  When con men pick a scam they look for people to whom it will naturally appeal.  Those are people in the field.  People feel secure and safe in those areas they know well.  They believe they will be too smart to be caught unawares.  Smart people know the areas they don’t know and tend to be far more cautious there.  Most of Bernie Madoff’s victims were financial professionals.

Rule #3:  Con men (and women) don’t look like con men.  This isn’t the movies.  They’re not going to have slouch hats pulled low over their shifty eyes.  Successful con men look like the safest, most trust-worthy, most honest, most stable, most comforting people imaginable.  You won’t see them coming.  Or rather you will, and you’ll be warmly welcoming them.

Rule #4:  99% of what they say will be true.  The best, most effective lies are surrounded by truth.  Buried in it.  The con, the thing that will leave you broke and with a real reason to cry, is carefully hidden.  It is deep in the proverbial fine print.

Rule #5:  If it looks too good to be true, it is.  There is no free lunch.  Not ever.  Your Mama taught you this.  She was right.

Listen to your Mama.

Of course, not all cons are clever.  An email from a Nigerian stranger offering you, random old you, millions to accept his money transfer should be obvious.  Right?

The stranger knocking on your door and offering cut-rate home repairs because we “just happen to be working the the neighborhood” if only you pay in cash up front, is a con man.  You know this.  Right?

Those are the kinds of simple cons my friend’s wife was thinking about, and she’s right.  She is much to smart to fall for those.  But those aren’t what had her husband worried.  It is the Mr. HMOYs of the world who seek out the smart, the rich and the lonely.

If you have not already done so, have these conversations with your own spouse.  Don’t leave it to a tackless (although honest) friend of the family like me.

Given the actuarial tables and her good genes, my own wife will likely also outlive me by a couple of decades or more.  Since I handle our investments, we have this conversation on a regular basis.  We review what we own and why.  Fortunately, she understands the principles and their importance.

As an aside this is one more reason I’m a fan of index funds.  I want to leave her with a simple portfolio she can leave on auto-pilot.

So far these discussions haven’t lead to my making an enemy of her.  Yet.  I think.

How’d he do that??

Investment scams are so common, and successful, that even the Canadian Government has set one up as a cautionary tale.  2-Cents shares it with us here:

http://balancejunkie.com/2012/03/12/what-you-need-to-know-about-online-investment-fraud/

Oh, and if you know how Mr. HMOY did it, post it in the comments.  If no one does, in a week or so I’ll add a post script with the answer.

Update:  Aaron nailed it right out of the box.  See his comment below.