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Financial resolutions usually don’t even last until the end of January. Making a permanent change in our behavior requires both time and a steely resolve. We can only develop financial character one action at a time. Here are seven practices to take you from pauper to prince or princess if you add one each year. Share your resolution with everyone you meet. You are 10 times more likely to act on a goal that you have articulated to someone else. Don’t wait until you have everything perfect to take ownership verbally.
Other than Ebenezer Scrooge in Dickens’s story “A Christmas Carol,” Tiny Tim is certainly the most memorable character. Dickens used the boy in the story to soften the hearts of both Scrooge and his readers toward the worthy poor. Although Victorian sentiments questioned the thrift or industry of the masses, a crippled, saintly child was obviously above reproach. In Dickens’s day, the disabled were feared because people believed they could be contagious.
Zynga was already the leading Facebook platform developer when it launched Farmville in June 2009. The idea was not original, but Zynga implemented it better and advertised it more than other companies. A year later Farmville had 80 million users, with most people coming back every day and representing about 10% of the Facebook population. If we celebrated our efforts at financial responsibility as much as we do Farmville, the savings rate in this country would rise significantly.
Studies show that people think about money as a pyramid similar to psychologist Abraham Maslow’s hierarchy of needs. Our first priority at the base of the pyramid is hand to mouth, meeting our physiological needs. Next we seek safety and security with enough money to support our health and well-being against accidents or illness and to save for infirmity in our old age. Having the money to meet these basic needs really does bring a certain degree of happiness.
Everyone worries about running out of money in retirement. Few people feel secure about government spending and Social Security. Even fewer retirees are confident about the future returns of the stock market. In the midst of this turmoil, especially after this past summer’s sharp drop, many investors wonder if they should put all of their investments into something safe and avoid the markets altogether.
My original attraction to libertarian ideals started in political theory and theology rather than in politics. This is not surprising because I did both part of my undergraduate work and three years of my postgraduate work in philosophy and biblical studies. Jefferson’s Declaration of Independence contains a very clear example of the mixture of Libertarian ideals with religious philosophy.
Last week I listed the first three reasons why I lean libertarian. First, centralized power in government corrupts. Less government power means less government corruption by special interests. Second, controlling another person’s life through force is inherently wrong. Third, government-supplied security is an illusion. By its nature, government cannot function in that role.
If you are tired of the continual government corruption and the senseless rules and spending, most of which fail to avoid mishaps, you may want to rethink your political philosophy. This isn’t a choice between good government and bad government. Much of government by its very nature does more harm than good.
Just because something costs a lot doesn’t mean it is an investment. Investments should appreciate at a rate that grows faster than inflation and gains purchasing power. And spending your money on noninvestments can jeopardize a plan to reach your goals of financial freedom.
Starting October 1, price controls were set by law on debit card swipe fees. Such populist well-intentioned legislation reduces economic freedom and slows economic growth. This situation has nothing to do with capitalism and everything to do with socialism. It seeks a state-directed and regulated economy serving the supposedly greater good of the nation. Such national socialism with the state seeking to control the economy is correctly called fascism.
Profound lessons can be learned from games like “The Settlers of Catan.” And the principles you learn can help you succeed for the rest of your life. Like Catan, the best games teach us principles in less than an hour that life teaches us much more painfully over years of calendar time.
This summer many things that should do better over a long-term investment strategy did not. This situation is not unusual for one quarter’s worth of time. Such a result only makes reversion to the mean much more likely in the coming quarters. It is always a good time to have a balanced portfolio. And you shouldn’t let a summer quarter’s correction ruin a brilliant long-term investment philosophy.
The restraint a good chess player must learn–slowing down to watch what one’s opponent is doing and may do, then planning ahead accordingly–is helpful in every aspect of strategic decision making. Perhaps the markets dropped precipitously. But what specifically did they do? What dropped the most? What can they do going forward? Perhaps they will drop more, or perhaps they will rebound.
CNBC’s million-dollar portfolio challenge begins next week. Participants can trade a fictional account of stocks and currency. Prizes are given over each of the 10 weeks, and then a grand prize winner is awarded a million.
Libertarians and economists both recognize that countries with more economic freedom experience higher gross domestic product (GDP) growth. That growth translates into higher stock returns for investors savvy enough to look for governmental fiscal restraint rather than government stimulus. While many economists acknowledge that freedom matters, few investment strategies take advantage of this fact.
If you look at Social Security as a system of taxation and redistribution, it takes from a single minority male worker and gives to married white women who never contributed. And if you look at Social Security as a forced retirement savings program, it produces such a terrible return we might as well invest in gold. Neither perspective is worth continuing. Social Security as we know it needs to be abolished.
A study by William Beach and Gareth Davis computed the cumulative effects of Social Security’s dismal returns. Imagine a community the size of Charlottesville, Virginia, of 44,000 young married double-earner couples in their 30s with each person earning the average wage and each couple having two children. That community loses $23 billion by receiving Social Security rather than what they could have saved in a private pension plan by retirement age using the same dollars.
The average investor puts money into funds that have done well and takes money out of funds that have done poorly. Using recent past performance to pick investment vehicles often means buying high and selling low. This is one reason that the average mutual fund holding period is three years or about one typical market cycle. Changing funds that frequently is a poor investment philosophy.
Standard & Poor’s (S&P) downgraded U.S. debt, and the administration and others pushed the idea that most of the blame was due to the intransience of the Tea Party. Calling this a “Tea Party downgrade” might be true in one sense. There weren’t enough members of the Tea Party to overcome the stubbornness of those refusing to make real spending cuts.If this was a Tea Party downgrade, it is only because the Tea Party wasn’t strong enough to overcome congressional politics as usual.
Our country’s debt and deficit is difficult to understand in the abstract. Translating it to the numbers on each taxpayer’s credit card can help us see how our country’s spendthrift ways have debilitated economic productivity. We have to cancel some of our subscriptions to costly and inefficient government entitlement programs. The sooner we rein in spending, the sooner we can free the economy from the burden of excessive government.
The Obama administration has been claiming that failure to raise the debt ceiling would be the end of the world. We are all tired of failed apocalyptic predictions. Perhaps all that will end is politics as usual. All the dire consequences of not raising the debt ceiling pale in comparison with the dangers of continuing to add to our deficit. I’m certain that partisan forces will push for the worst possible consequences if a deal is not reached, but I’m hopeful that the average American will not be snookered.
Adding bonds to an all-stock portfolio can boost returns and lower volatility, especially in choppy markets. Bonds should be a small but important part of your gone-fishing portfolio allocation. The purpose of a gone-fishing portfolio is to set a simple allocation for each asset class so you can sleep at night and rebalance once a year. Keep some in bonds so you have stable investments with which you can rebalance if the markets fall in value.
Hard assets have been one of the most significant asset classes over the last decade. From all indications, it will continue to be a critically important investment category to protect your portfolio from the effects of inflation and the continuing devaluation of the U.S. dollar. Creating a gone-fishing portfolio begins with a top-level asset allocation.
Last month the Obama administration announced it would release 30 million barrels of oil, the largest ever, from the U.S. Strategic Petroleum Reserve. Only those without an understanding of basic economics would applaud such a move. While we are arguing about Big Oil’s subsidies of $18 billion over 10 years, no one seems concerned about Big Government’s windfall taxes of $24.4 billion every year. We should keep the strategic reserves for a real emergency.
The purpose of a gone-fishing portfolio is to keep things uncomplicated and allow you some extra time for fishing. Even in our gone-fishing portfolios we suggest investing more overseas than in the United States. For most investors, foreign stocks will be their largest and most important allocation. Including the right mix of foreign stocks will help you relax and go fishing no matter which foreign seas are in turmoil.