Retirement for Young’uns

If you’re under the age of say 45, have you ever stopped to think about what your retirement will look like? With the recent mulling over of raising the Social Security eligibility age (to 70 in case you didn’t know), maybe it’s time to take a reality based look at our golden years.

The good people over at FrugalDad are questioning the typical retirement rules.

As our economy shifts away from manufacturing (something I personally find very sad), and into service, I think people will be more likely to change jobs dozens of times in their lifetime.

I personally have worked for 5 different companies in the span of 10 years—not including the 5 legitimate and as many illogical businesses I started over the same period. To say that I view retirement differently than 99% of the American population is a vast understatement.

So, how does having so many jobs affect retirement?

With all this job-hopping, the emphasis on personal responsibility for your financial future cannot be emphasized enough. Add in the question of social security’s solvency, the disappearance of the corporate pension, and the possibility of state bankruptcies, and you can easily see we are walking a financial tightrope with no safety net.

Just the other day I was speaking with a co-worker (he’ll turn 50 next year and has worked for the same company for nearly 20 years now) about the myriad of businesses I started. One thing he could absolutely not get his head around was how I managed my own benefits. Health. Retirement. The whole lot. For him, it was a scary prospect. For me, it was freedom and control. Two very different mindsets indeed.

Perhaps we should change our definition of retirement.

A short but profound summary. How about you? Have you really looked at retirement, as it’s defined by older generations? Do you agree?

Read the whole article at FrugalDad.

Related article: The End of Retirement as We Know It (

7 Unusual Jobs with Great Pay

It used to be that when your job title included the word “Director”, “Chief” or “Chairman” that you could expect to make the big bucks, but in this day and age, if there’s a job not many people will do, or can do, then the earning potential is endless.

Maybe you’ve heard of unusual jobs like chicken sexers, who separate the male and female baby chicks, or odour judgers, who sniff armpits to judge the long lasting effectiveness of deodorants (and there must be someone who writes the messages that come in fortune cookies), but here’s a list of unusual jobs that also pay exceedingly well. If you thought garbage man was on the list, think again, this unusual list will surely make you think differently about a 9 to 5…

Continue Reading…

Investing Success and the Luck Factor

What stock market average do you use to forecast investment returns? 10%? 12%? Maybe something a little higher or maybe a little lower?

Try as we might, chance (or luck or whatever you want to call it) is the biggest predictor of how your investments will fair over a 30 year period. Or so says a current Wall Street Journal article.

The biggest factor in long-term returns is how the financial markets happen to perform during the 30 or so years an investor puts money away for retirement.

As recent history has shown, those hoping to retire in the last few years have seen a stock market drop nearly 40%. You may have been careful and committed to your savings for 28 years only to have it disappear in short order. What does it mean when all of those hard earned gains disappear in a few months? It had nothing to do with your sacrifices over the last three decades. It had everything to do with luck.

It’s a sobering thought. If so much of your fate as an investor is out of your hands, what can you do? Focus on the things you can influence…[like] saving as early as possible, save as much as possible, diversify and pick low-cost investment options.

But what about historical norms? The percentages we use to gauge the success of our portfolios?

The problem is, there really is no historical norm. [There are] a tremendously wide range of returns for various 30-year periods. For instance, $100,000 invested in 1946 would have grown to about $1.15 million in 1976, but the same amount invested in 1976 would have delivered about $2.27 million in 2006.

And, of course, there’s the human element. Which tends to be wrong most of the time.

It’s well established that people attribute bad luck to randomness, but then attribute good luck to their own skill.

We also know that we shouldn’t eat too much or linger at the bar too long. But we do anyway. And then blame our something outside ourselves for the consequences.

Maybe we should just be crossing our fingers instead?

Read the entire article at the Wall Street Journal Online.

Investing According to Dilbert

Scott Adams, the now infamous creator and continued instigator of Dilbert, has his own investing strategy.

In a recent Wall Street Journal Online article, the King of Dilbert spills his true feelings about investing, professional money managers, and if beating the market is possible.

Mr. Adams says he doesn’t consider buying broad index funds and index ETFs to be “investing”—and he means that as a compliment. He doesn’t believe ordinary investors or financial pros really have any insight into what is going to work, so he equates investing—or trying to boost returns by making selections based on some intelligence or research or expert advice—with “junk science and astrology,” he says.

Mr. Adams does invest using index funds—just market tracking index funds.

He has come to use ETFs rather than index funds in the past five years because of their usually lower expense ratios. He says he bought them through discount brokerage Charles Schwab Corp., and he bought his munis with assistance from Schwab’s bond specialists.

A former believer in professional money managers, Mr. Adams swore off financial advisors after the Enron and WorldCom meltdowns during the 2000-2002 bear markets. His personal “non-professional” investments lost money. Just much less money than the professionals.

His sentiment is summed up by the fact he…

…doesn’t believe there is a scientific way for investors to decide how to spread their money among assets.

He has since been managing his own investments. In between cartooning of course.

Read the entire article at the Wall Street Journal Online.

Make Money or Be Happy?

Most of us (I think) would agree we don’t have to choose between money and happiness. But money consumes nearly our entire awake lives. When we have it, we’re trying to protect and maximize it. When we don’t have it, we’re figuring out how to make more of it. Or make the best of what we do have.

Stop and think about a normal day. We are absolutely overwhelmed with money thoughts—spending it, saving it, investing it, and earning it.

And everything is measured in monetary terms. Gas went up 10 cents in 2 days. I saved $50 on groceries. I will get a 3% raise. I’ll be debt free in 20 years.

Even though we may be money thinking creatures, studies continue to show that critical components outside of money matter—a lot.

Once recent study, titled Meaning Really Matters, revealed in a MarketWatch column states:

Being healthy, creating deep relationships with family and friends, having a sense of purpose, and feeling like you belong are major components of a happy life. What’s more, those ingredients are just as true for those in their 20s as those in their 70s—and in the midst of a recession, too.

So, how do you know you’re living a happy life?

In the study, those living the good life uttered such comments as “Being spiritually, emotionally, mentally, and physically healthy,” “Having enough money not to worry about whether or not I can pay the bills; good friends to share life with” and “Having a safe, healthy, and happy life with family and friends.”

So, in that sense, as long as the bills are paid, there should be no sense stewing about money, right?

The study also stated that…

74% of those living the good life were completely content, as opposed to only 24% who weren’t living the good life.

Ahhh. Therein lies man’s greatest secret—contentment. So, how do we get there, to the wonderful place of contentment?

The chief component is having a sense of purpose, according to the study. That sense of purpose is “interrelated with vision—having clarity about the path to the good life and focus—knowing and concentrating on the most important things that will get you to the good life.”

So, is this equation right? Being happy = contentment + purpose (which is comprised of clarity and vision).

Read the entire story at MarketWatch.

Saturday Personal Finance Roundup – 1

Ok. I’m starting something new today, Saturday. I enjoy roundup posts because they unearth stories I may never see during the course of the week, or ever for that matter. So, they’re a great source of content. Not only for this blog but Twitter as well.

With that, I’m introducing my “roundup of roundup” posts and articles. It’s really a meta roundup. I’ll provide the overall theme with a link to pre-built roundups. Now I can be a resource for the best of the “best’s best”. Make sense? If not, just click through the links below to get to the stories.

Also, these links may or may not point to recent roundup posts. So don’t be alarmed if you click through to a roundup that was posted 6 months ago.

Kip Tips – Kiplinger Magazine – a mashup of saving when buying in bulk, getting out of debt, and a review of job search sites.

Wise Bread – Tips for buying cheap(er) wine, the benefits of raised garden beds, a quick and cheap hurricane lamp tutorial, and habits for highly effective budgeting (among others).

Joe Taxpayer – When will you have enough? What’s enough to save for retirement? Also has articles about good and bad debt, saving without cutting coupons, and calculating net worth.

The Consumerist – The 6 most valuable grocery store items, how to save while traveling, and saving for retirement when you’re 40 and over.

Top 10 Investment Scams

Maybe your employer has cut back on hours or maybe you’ve lost your job altogether. You’re desperate. Bills need paid. Late one night an email hits your in-box promising wealth and riches. But you’re smarter than that. Delete. Stupid scammers. Then another, less flashy one hits.

This one doesn’t promise riches. It explains how you can earn enough to pay your bills and avoid foreclosure. The amount seems reasonable—$2,000 per month in a few months. It requires you to work (looks good so far). You spend $99 maxing out your last credit card. The “Cash Strapped” course never arrives. Emails to support bounce back. You’ve been scammed by what seemed like a reasonable offer to make just a little more money.

Of course, scams aren’t just for those desperately seeking work. People with early retirement dreams are scrambling to re-build devastated 401Ks and are quickly becoming prime targets for today’s sophisticated scammers.

Apparently, investment banks aren’t the only ones getting rich during the recession according to a recent USA Today article.

“Investment scams always sprout during a recession, and con artists are reaping a big harvest in this economic downturn.”

The North American Securities Administrators Association released its annual Top 10 Investor Traps. A few among them:

Green schemes. Alternative energy frauds play on the allure of energy-efficient technologies. Some scammers pushed oil-spill cleanup technology in the wake of the Gulf oil spill.

I definitely think this scam will continue to grow as energy costs skyrocket.

Unsolicited online pitches. Scam artists have found a new home in social media. You’re not going to get a hot penny-stock tip from an anonymous e-mail. You won’t get one on Facebook, Twitter, or Craigslist, either.

Based on my own experiences looking for rental houses on Craigslist (I can’t vouch for other categories), 9 out of 10 listings were outright scams. I wouldn’t touch any kind of investment opportunity on Craigslist. Ever.

A growing scam that’s not on the list: viatical schemes, where you invest in securities backed by the life insurance of a dying person. The dying person gets an immediate cash payout, while the backer of the plan pays the insurance premiums and collects the death benefit.

Wow. It’s a dangerous world out there. Tread carefully.

Get the full list of top investment scams.

Saving as a Prudent Habit

Yes, saving is considered a good thing. But why? Why should we save? When we’re busy pursuing careers (i.e. money), we rarely stop to think that one day we may not be physically or mentally able to work. We live for today.

The writers over at A Personal Finance Guide have something to say about this quandry too:

“Saving should be inculcated as a habit from early on so that when you are no longer getting a fixed paycheck every month, you are not financially dependent on some one else. It is important to start early so that you can build a sufficient corpus by the time you retire.”

So what do we need to save for?

“…emergencies like an unforeseen surgery. At least, three to six months of salary should be kept aside to tackle contingencies…our children’s education and also for out retirement. We need to save for sinking funds like car maintenance or house repairs.”

Does retirement exempt us from those financial emergencies that seem to crop up at the most in-opportune times in our current, daily lives? No. Not at all.

How much do we save? Estimates start at 10% of income and go up from there. Of course, the further along you are in career and age will dictate how much you need to save. Either way, today is the day to start.

“Money is synonymous with power. It will grow quickly with systematic saving and prudent investing. The time to act is now!”

Read the rest of the article on A Personal Finance Guide.

Investment Outliers can Kill You

My company sets aside a percentage of my salary each year (based on company performance) in what’s called a money purchase investment plan. I can invest that money however I choose, mostly. Stocks, bonds, mutual funds. Maybe gold (I’ll have to ask).

So the other day I’m trying to figure out, based on my current salary, what kind of return I would need in order to amass a million dollars by the time I’m 55. In my analysis I did what all good people do nowadays. I Googled. I was looking for the “average stock market return rate”.

The answer? All over the place. Returns showed everything from 8% to 15% over the last 100 years. Does that mean if I buy a market index now and wait 20 years I should expect to receive an average return somewhere between 8% and 15%? Not exactly.

The only thing we can take away from historical stock market returns is that buying and holding has worked in the past and will most likely continue to work in the future. Or so the saying goes.

Carl Richards from Prasada Capital, writing in the Bucks Blog at the New York Times online, throws a little rain on the buy and hold parade using the concept of outliers.

“In theory, an outlier is something that is so unlikely that it is thought to be unrepresentative of the rest of the sample. In this case, these outliers generate returns that, according to the theory, we are almost never supposed to see.”

He continues by stating…

“When something is never supposed to happen, we don’t spend much time thinking about it. Instead we focus on the average.”

In terms of investing, this works out well because we’re not concerned with yearly performance. Why would I be concerned if my investment horizon is 20 years or longer?

According to Richards, I should be concerned.

“The problem is that average is not normal and focusing on it leads us to greatly underestimate the impact that these outliers can have when they do show up.”

But, in reality, these outliers, these non-normal returns that I shouldn’t be concerned with…

“…have such a huge impact that they actual obscure the importance of the average…

If you take the daily returns of the Dow from 1900 to 2008 and you subtract the 10 best days, you end up with about 60 percent less money than if you had stayed invested the entire time. “

Ten days. Ten days out of 108 years. Can you think of ten days in your life that would have this colossal of an impact on your finances? Hard to imagine.

So, what if you remove the ten worst days? You would have ended up with three times more money. So, my million dollars would be worth three million. Ten days.

Read the entire article on the NY Times Bucks Blog.

Excuses for not Having a Will

B Simple over at Simple Financial Lifestyle wrote a tongue-in-cheek post about the 10 Reasons Not to Have a Will. Thinking it was a list of reasons why we should forego having a will, I realized it was a list of reasons that were really just excuses.

Among the highlights of silly reasons why most of us don’t have a will,

I’m not alive, why should I care? I will not be around so why should I plan how my assets will be divided. I believe my ex-spouses and children are more than capable of dividing my assets evenly so that everyone is happy and gets their fair share.

In a society filled with utter selfishness, I wonder how many times this excuse has been invoked? Have you thought of it?

And, of course, amidst the public’s distrust of Congress and the government in general,

My elected officials can handle it better than I can. Since I have elected these individuals to represent me, I believe they have my best interest at heart and will implement laws that will benefit me and my family. They will know how my assets should be distributed.

I admit that I’m guilty of not having an up to date will. When my wife and I had our first child (She had the child. I had the luxury of watching.), we made a point to get a bona fide will put together.

At the time, we were more concerned with who would be responsible for our son should something happen that incapacitated both my wife and myself at the same time. We didn’t have any assets to speak of. Or assets that had any meaningful value. Meanwhile, 7 years, two more babies, and considerable assets later, we haven’t updated our will (yikes!).

I know what I’ll be doing this week.

Read the entire article at Simple Financial Lifestyle.

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