Diet, Health, Personal

Habits of improved health 1-2

Two years ago, I decided it was time to get off the roller coaster of weight loss and gain and join my wife in making some permanent changes toward improved health. I wrote quite a bit about it in half a year. Despite continuing in that journey, I have written little since.

Recently, my oldest daughter Betsy asked me to contribute to a series she is starting on her blog called “50 habits of skinny people.”  So I am using this as a motivation to write more regularly on habits we have adopted toward good health. Here goes.

Health Habit 1- Decide to adopt health habits

The first “habit” I would like to focus on is the fact that healthy people eat and live differently “habitually” then those who do not.  If you are reading this as a person who wants to be healthier and esp. thinner, the answer is not so much in making temporary changes in what you eat (dieting), but to adopt new and long-term ways of eating and living that are more healthful.

It is no secret that Americans “diet” like no other culture and yet, as a people we continue to gain weight. Why? Because we change for a while and then return to our old ways, leading us back to the condition in which we started.

My wife and I have both been on the weight roller coaster before. Eight years ago, my wife lost 35 pounds and she has kept it off. Two years ago, I took off 20 pounds and have kept it off. The difference this time was adopting lasting changes to our diet and finding ways to add activity to our lifestyles.

So as you read about habits we have adopted to improve our health, I encourage you to give them serious consideration as potential ways to improve yours. Adopt those habits you can “live” with. Small changes that are applied consistently over years can make a big difference (as long as you don’t use them as an excuse for more excess elsewhere).

Don’t believe those that say you cannot lose weight and keep it off. It is not true; you can, but only by making changes in the way you think and what you do. Keep reading.

The goal is improved health. Improved health has meant more energy, improved sleep, a better outlook on life, more physical capability, freedom from medications, less illness, and the promise of not only a longer life but a better quality one as well.

Don’t let anyone tell you there is no sacrifice, it is. But it is worth it. Read on.

Health Habit 2 – Walk more

There are two principle ingredients to improved health: eating better and being more active.

There are many ways to be more active. I will discuss the benefits of a regular exercise program in future habits but let’s start with just walking more.  Over the last two years I have returned to jogging, but I started with walking.

Heading out for a walk with the dogs

I walk every day, twice a day, with our two dogs: Bingley and Bear. We walk no matter what the weather (ok, if the wind chills is -30, we shorten it a bit but we still go). We walk a mile in the morning and another mile about supper time. It does them good and it does me good. Another way I walk regularly is by parking about 7 minutes from my office (where parking on the street is available) rather than in the parking garage across the street. It saves me the $60/month for parking and gives me a bit more walking time.

In addition to improving health, walking gives me time to pray, unwind from a busy day, or give consideration to some matter that needs some time away from other distractions.  My wife just got me an iPod for Christmas. So now the menu of options while walking includes listening to books on tape.

Diet, Health, Work

Life is chaos but at least we are healthy

Wow,  I knew I had been remiss in writing on my blog but I did not it was this bad.

First, the reason for tonight’s post: to put in a link to a posting on Cathy and my blog (dcbarfield.org) related to a cookbook we just found and would recommend: Eating Well for Two (a great cookbook for empty nesters like us). See http://dcbarfield.org/2011/11/02/a-good-cookbook-for-empty-nesters/

Speaking of being empty nesters, I thought I had done a blog update on the June 18, 2011 marriage of our youngest daughter Megan to Brandon Hash. Wrong. Expect it in the near future.

But maybe not before November 18, the date my expert report is due in Kansas’ U.S. Supreme Court against Nebraska.

The year has been a remarkable full one both personally and professionally. Obviously the marriage of our youngest daughter (after doing the other two in less than a year before) was the big personal event. Work is always busy as Kansas Chief Engineer of the Division of Water Resources but add a major drought, a new governor’s major initiative on our Ogallala Aquifer over-development , a  U.S. Supreme Court lawsuit and more, and you have one busy man.

I will get back to finishing my series on investing. But again, not until I have a bit of recovery time after November 18.

Finally, in addition to eating well, the exercise program is going well, alternating between running and two Men’s Health exercise videos) More on this later as well.

Back to work on my expert report.

Finances, Investing

Investment Advice: Bow to the Wisdom of the Market

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Finally we arrive at the hallmark of Malliel’s investment strategy: invest in low cost index funds in the broad market rather than relying on professionally managed funds who can point back at their superior results. Why: the index does better than 85% of such funds and you cannot know who will beat the market in advance. Much more often than not, yesterday’s hot funds, underperform versus the market today. Read on. 

Malkiel’s Rule 8: Bow to the Wisdom of the Market

In this chapter is the second foundation for his core investment strategy recommended in the book. The first foundation from Rule 7 is that “costs matter”. In Rule 8 he works to persuade us that market is smarter than not only non-professional investors (not difficult for me to accept) but also the “experts”. He says that 90% of the money in the market is invested through such advisers despite the fact that those investment underperform versus the market as a whole.

Again, he quotes Vanguard founder Jack Bogle: It’s time to face reality: There is no evidence that research – even the research of the Institutional Investor all-stars—adds value. Academic studies only confirm what we all believe: The stock market is highly efficient, and that stock princes incorporate virtually all information. As I’ve often said, “Never think you know more than the market. Nobody does.”

Malkiel goes on to explain why. When news arises about a company, an army of profit-seeking Wall Street professional on it rapidly, driving stock prices up or down depending on the news. He says when we read it or hear it, it is likely already reflected in the market.

Further he says this news is random and unpredictable. “And so market prices (except for the long-term up trend reflecting growth in the economy) move like a drunkard meandering down the stream. This is what financial economist mean when they say the stock-market prices in an efficient market behave like a random walk.”  [Thus the name of the book.’

If you recall his first basic point, fire your investment adviser, it is based on this efficient market theory. As the experts can’t predict things any better than the market, it is best to just invest in a low-cost index fund (see next chapter for specifics).

Does this mean the market never make mistakes? No, the internet bubble of the year 2000 is an example of mass insanity of the market. But such incidents are rare and cannot be predicted either.

Having read and embraced this idea, I still wondered if there might be a way to see the big patterns of bull and bear markets and know when to get out of the market for each least some of the bad periods (bear markets). His section “Timing Isn’t Everything” addresses this. He says no one can time the market.  He quotes Bernard Baruch, famed investor, who says, “Only liars manage always to be out during bad times and in during good times.”  He backs this up with some statistics that a significant amount of the growth in the market occurs in small windows of time, some of which is in the “bad times.”  He quotes Charles Ellis, “Investors would do well to learn from deer hunter and fishermen who know the important of being there and using patient persistence – so they there when opportunity knocks.”

Ok, I guess I am convinced (I think; I still might change the stock/bond ratio if I am convinced we are heading for a rough time).

Here are the summary statistics that say the index fund win over the professionals:

  • over 10 years, 84% of professional managed funds are beat by the index (e.g. S&P 500); over 20 years, it is 88%.
  • Over 10 years, the S&P 500 gained 9.27%/year, the average professional managed fund gained 7.18%. Over 20 years, the spread is even greater.

Why? Expenses drag down the performance of professional managed funds.

Next he addresses the question as to whether there are managers that beat the market consistently. He says that some managers do for a time but they do not do it consistently. He says there is no way to know the best manager in advance; it is only looking back that we can find them. [He addresses the lone exceptions or two in the last part of the chapter.]

He demonstrates that chasing hot performance (using managers who have done best in the most recent two-year period, 5-year period, 10-year period or those listed on Forbes Honor Roll or Morningstar’s 5-star funds) does not beat the market. He quotes Jonathan Clements on this point: “When an investor says ‘I own last year’s best performing fund’, he usually forget to add, ‘unfortunately, I bought it this year.’”

Finally, he spends the last part of the chapter on the Warren Buffet exception. In the end, he says you will never know in advance who the winners will be.

I find this pretty compelling logic and research here. My remaining question: are there not broad segments of the market I can buy into and stay in that beat the market as a whole? Perhaps the answer will be in the next chapter.

Next time:  Rule Nine: Back Proven Winners Model Portfolios of Index funds.

The above is from my on-going study on investing, from Malkiel’s The Random Walk Guide on Investing. For more, see my summary.

Finances, Investing

Investment Advice: Costs matter

I started this investing study seeking to find out why my professionally managed investments are outperformed by unmanaged indices of the stock market (e.g. the DOW). In this chapter, I believe we uncover the dominant reason and the most important single paragraph of his book. With the foundation complete, in the three chapters that follow, we will see Malkiel’s strategy for beating managed funds.

Malkiel’s Rule 7: Pay Yourself Not the Piper

This chapter focuses on the costs of financial services. In his opening paragraph, he makes the point that over the long haul “the sales charges and ongoing expense you pay will hake a dramatic difference in the cumulative value of your portfolio.”  He says that these costs can be about 2% a year.

An illustration of why this matters: If over the long haul your investments make 8% a year (as stocks have done over the long haul), these costs will effectively reduce your net rate of return from 8% to 6%. Now remember the rule of 72. Instead of your money doubling over 9 years, it will take 12 years.  Suppose you invest $1,000 over 40 years. At 8%, this amount will grow to $21,725; at 6%, it comes to $10,286 instead. His conclusion: costs matter.

He warns that many financial services companies obscure their costs. He quotes the former chairman of the Vanguard Companies, “A low-expense ratio is the major reason why a [mutual] fund does well…the surest way to top-quartile returns is bottom-quartile expenses.” He says that most mutual funds turn over their entire portfolio in a year, adding transaction costs to the management expenses they charge.

So you need to look for funds with low expense ratios.  He advises against mutual funds with a load charge. He says the situation it the same with bonds and money-market funds, costs matter.

“Every extra dollar of expense you pay is skimming form your investment capital. Those funds are lost forever.”

So here is the most important paragraph of the book (so far at least) in my opinion:

In rules 8 & 9, I will recommend broad-based stock and bond index funds as the preferred investment vehicles of choice. Of all the funds offered in the market, index funds have the lowest expense ratios. Moreover, index funds mangers are fundamentally “buy and hold” investors. Thus, they avoid the transaction costs that are associated with funds that trade from security to security and regularly turn over the holdings in their portfolios. But even with index funds, expense ratios vary among mutual fund companies. You can be an educated consumer by learning about expense ratios from the Morningstar Mutual Fund Service (www.morningstar.com) and the Securities and Exchange Commission (http://www.sec.gov/investor/tools/mfcc/mfcc-int.htm). Don’t let high fund expenses eat up your retirement funds.

 Finally he says that cost matter in all financial products.

  • He cautions against buying insurance via variable annuities and whole life policies as they are in essence mutual funds with a costly insurance wrapper.
  • He suggests if one wants to buy stocks directly, to look for a discount broker (but make sure you know what you are doing and you get an honest broker belonging to the Security Investor Protection Program).
  • He also has a strong caution against something called a “wrap account” as they cost can be very high.

Next time: Rule Eight: Bow to the Wisdom of the Market

The above is from my on-going study on investing, from Malkiel’s The Random Walk Guide on Investing. For more, see my summary.

Finances, Investing

Investment advice: Reducing risk through diversification

Malkiel’s Rule 6: Never Forget that Diversity Reduce Adversity

Not only does he recommend holding the different major asset categories (cash, bonds, stocks, real estate), but also diversifying holdings within each category and over time (through dollar cost averaging). He says his advice is not new. Cervantes, in his epic novice Don Quixote, advises that one should not “venture all his eggs in one basket”.

Diversifying in the various investment categories

He includes a few horror stories of people that were doing well invested in what looked like solid investments only to lose much (e.g. Enron stock; internet stocks; Worldcom bonds; etc).

He has a great illustration in his book which is too long to repeat here but that clearly shows that diversification results in much less risk with little reduction in return on your investment. The reason to diversify is fairly simple: as good a deal as individual stock or sector appears, things can change rapidly and unpredictable for a single investment. “By holding a wide variety of stocks, you reduce the risk considerably because economic events don’t affect all companies in the same way and unfavorable company-specific events are likely to be balanced by very favorable events for other companies.”

He recommends investing as many as 100 different stocks to reduce risk. For almost all of us the only practical way to do this is via mutual funds as this is what they do: allow you as an individual investor to own pieces of lots of different stocks.

He does not think most investors need to diversify internationally as there are plenty of good options here and many American companies are global to a significant extent anyway.

He also recommends diversification in bonds (again there are mutual funds for bonds) and real estates investments (via REITs).

Diversification Over Time (dollar cost averaging)

Under his section on “Diversification Over Time” he suggests putting money into the market regularly over time and explains and illustrates something called “dollar cost averaging.” It involve regularly saving (investing) the same amount of money over the long term on, e.g. a monthly or quarterly basis. You do this when stocks are up and when they are down. When stock prices are low, this results in buying more shares; when stock prices are high, you end up buying few shares. He demonstrated that you when you save in this way, you are actually ahead when the market goes down and then returns to its original value verses a market that is constantly going up.

While I won’t take you through the numbers (there are in the book and others as well), here is a great quote he provides by Warren Buffet that helps explain the concept in words:

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

He concludes by warning that dollar cost averaging will not solve all our investment problems. The plan does not protect you if you need to take the money out when the market is down. And there is a time to alter the above. In fact, when the market is down may be the time to buy a few extra shares. The worst thing you can do is to sell when the market is down if you can avoid it.

Next up: Rule 7 – Pay Yourself, Not the Piper (controlling costs)

The above is from my on-going study on investing, from Malkiel’s The Random Walk Guide on Investing. For more, see my summary.

Finances, Investing

Investment advice: Allocating your portfolio

Malkiel’s Rule 5: Match Your Asset Mix to Your Investment Personality: How do allocate assets.

Once you have started regular savings, you need to decide how to allocate your savings among the 4 investment categories noted in Basic Point 2 (cash, bond, stocks, real estate).

He starts off with a reminder: remember that risk and return are related.   Over the period 1926 to 2002:

  • Cash investments averaged a 3 ½ % return but brought a risk of plus/minus 3%.
  • Bonds averaged 5 ½ % return but brought a risk of plus/minus 9%.
  • Stocks averaged a 10% return, but brought a risk of plus/minus 21%.

His chapter provides more detail than the table above on the performance the various investment options over time but in the end, he comes to this advice:

3 factors that affect asset allocation:

1)      Time horizon. The longer you have, the more of your money you can have in stocks (for greater earnings). The shorter your time horizon, the more that should be in cash and bonds.

Rule of thumb: your age should dictate the % of your retirement assets in bonds (and I think he intends to include cash). Example, if you are 25, can have 75% in stocks and 25% in bonds and cash. If you are 55 (as I am at this writing), he suggests you have 55% of retirement assets in bonds and other safe investments and no more than 45% in stocks.  An exception: money you are leaving to others that do not immediately need it.

2)      Capacity for risk – you may need to adjust the above general rule if you cannot afford short-term loss (i.e. decrease the % to stocks).

3)      Your temperament – similar to #2, you may need to adjust from the above general rules if you don’t have a temperament that can deal with short term losses. It is better to earn less in safe investments than to bail out of stocks when they take a plunge. “Sell down (stocks in your portfolio) to your sleeping point (where you can sleep at night).” He has a useful table on p 94 that related how much you can stand losing in a bad cycle vs what the percent you can have in stocks. It says, for example, if you cannot take losing more than 20% of your investment value in a bad cycle, you should have not more than 50% of your money in stocks.

Re-balance regularly

With changes in the values of various parts of your portfolio (e.g. stocks vs. bonds), your target mix can/will get out of balance with the target you established. When this occurs, re-allocate your investments to return to the right balance. He suggests rebalancing annually. To the extent possible, do this via new investment money (to reduce costs of moving money around (see Rule 7).

Next up:  Rule 6  – Reducing risk through diversification

The above is from my on-going study on investing, from Malkiel’s The Random Walk Guide on Investing. For more, see my summary.

Finances, Investing

Investment advice: Accelerate savings via tax breaks

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It’s now time to look at saving strategies that reduce taxes, esp. the different types of individual retirement accounts (IRAs). IRAs are our federal government’s encouragement to save for our retirement (and kids/grandkids college costs).  This summary will explore the differences in traditional and Roth IRAs and then overview pension plans. We will look at similar plans to save for college costs for kids and grandchildren and close with Malkiel’s “best” tax strategy

Malkiel’s Rule 4: Stiff Tax Collector

Individual Retirement Accounts (IRA) overview (they come in two basic types – pay attention; as other tax breaks use the same basic approaches).

First, be aware there are three different ways to reduce taxes via these IRAs (each type doing only two of the three benefits):

1)      Reduce taxable income (and typically taxes) when you contribute

2)      Avoid being taxed on the growth in investment value over time (in other investments you have to pay taxes as the investments earn money)

3)      Reduce taxable income (and typically taxes) when you withdraw from your IRAs for retirement.

Here are some things that are applicable to both types:

  • Annual limits for IRA deductions (you can do one or the other or both; but in any case, these limits are for the sum): $ 5,000 if under age 50; $6,000 if over 50;
  • both you and your spouse can contribute this amount if you having earned at least that much
  • this limit is reduced if you earn over a certain amount: $90,000 for married filing jointly.

Traditional IRAs. Here you get benefits 1 & 2 but NOT 3.

1) When you put your money in a Traditional IRA, you reduce your taxable income by that account. The contribution to the IRA is subtracted from your income on line 32 of Form 1040, before computing your adjusted gross income. For example, if you are in a 15% marginal tax bracket as many of us are (i.e. for each additional $1000 of taxable income, you pay an additional $150 in taxes), then you can think of it as the government paying for 15% of the IRA through reduced taxes.  In most states, your taxable income for state purpose is also reduced (in KS, many of us a taxed at a 6% marginal state tax rate).

2) The IRA’s growth in value over time is not taxed.

3) However, when pull the money out of the IRA at retirement, it is reported as income and taxes at that time (currently on line 15b of the Form 1040).

The hitch = you must leave the money in a retirement account until retirement age or suffer 10% penalty.

This is still a significant benefit. As is illustrated in the book, at 8%, your money will grow 3 times as fast with this benefit than not. Even considering taxes at the end, you are way ahead vs saving for retirement without the tax benefit.

Roth IRA – In this case, you get benefits 2 & 3 above but NOT 1.

1) So you do NOT get to deduct the IRA contribution from your taxable income in the year.

2) Your investment grows tax-free

3) You can access your contributions at any time without having to claim it as income and without penalty. To withdraw earnings tax-free (and penalty-free), you will need to be at least 59 ½. But follow these rules and your withdrawals are NOT treated as income as with a traditional IRA [it is reported on your tax filing but it is not taxed].

Which type of IRA is best for you? It depends. There are lots of people willing to help you figure it out. In general, if you have plenty of time until retirement, the Roth is best, esp. if in a lower tax bracket.

Pension plans

Some with employers you can contribute at work to a pension plan (typically called 401k or 403b plans). Even when this is not an option with your employer, you can do it on your own (Keogh or SEP-IRAs). The tax benefits and “hitches” and similar to the traditional IRA above. The advantage of these pension plans is you can contribute greater amounts.

What can you invest in and through whom?

A wide range of investments types: stocks, bonds, mutual funds, CD’s.  He will talk about how to allocate between these choices in Rule 5. There are plenty of places to set these up: banks, securities dealers, insurance companies, mutual funds, etc.  More on this topic later as well (Rule 7 and 9).

Priorities:

1)      Retirement plans where your employer matches your contributions

2)      IRAs and non-matching retirement plans

3)      Roth IRAs (can be above number 2 in some cases)

4)      If you have still more, get some help (he has more advice in his book).

Saving for children/grandchildren’s college with tax advantages

529 plans allow for tax benefits like the Roth IRAs for contributions into funds dedicated for use in college expenses for your children or grandchildren. They have a very liberal in definition of educational expenses (including buying apartments for housing your students or cars as transportation).

Many states provide similar state tax benefits for qualified plans.

I encourage you to NOT put the funds in the names of your children (grandchildren’s) as it may negatively affect financial aid.

Educational Savings Account is another option to explore.

His “Best” tax strategy – Buy your own home. It is a form of forced savings. It has tax advantages as well: interest on your loan and real estate taxes can be deducted [however the tax benefit will only occur to the extent your itemized deductions are greater than the standard deduction you can take: for singles that is $ 5,700 and for a couple this is $ 11,400 in 2010).

He also suggests you avoid over-extending buying a house, i.e. limit your mortgage to 30% of your income.

Next time: Stock, bonds, cash – how much do I put where (asset allocation)?

The above is from my on-going study on investing, from Malkiel’s The Random Walk Guide on Investing. For more, see the index page to my full summary.

Finances, Investing

Investment Advice: Cash Reserves and Insurance

Murphy’s Law: What can go wrong, will go wrong.
O’Toole’s commentary: Murphy was an optimist.

Rule 3 Don’t Be Caught Empty-Handed: Cash Reserves and insurance

After a short section on why you need cash reserves, this chapter focuses options for where to put the cash, and then concludes for some words on insurance, with a focus on life insurance.

In the chapter, Malkiel provides a helpful overview of the options where your money will be safe, readily assessable and still earn a little return (unfortunately in our day, the return is a very little).

Establishing a Cash Reserve

Many investment advisers say “Cash is trash” as you don’t make much return on it. Yet everyone needs some reserves in safe, liquid investments for life’s surprises, as bad things happened to good people. In addition, you should be fund expected large, future expenditures (college for kids, etc) with short-term investments (e.g. bank CDs) whose maturity matches the date when needed.  Here is a look at his alternatives (and at the very end, what we are using at this writing).

Money-Market Mutual Funds

He believes this is the best instrument for cash reserves. They are safe and have “relatively generous yields” [at his writing of 2003 he was saying 1-5%; at this time (2011) do not expect much].

His list of low-expense money market funds (at the time) included:

Minimum purchases listed in his book are $ 2,500 to $20,000.

Below (under CDs), he suggests you go to www.bankrate.com to look at rates. They have them for money market accounts as well. As of 3/27/11, it appears the best rate with no minimum is 1.2%; with several options between 1% to 1.2%.

[Again, see the bottom of the article for what we are using.]

Bank Certificates of Deposit (CDs)

You get these through a bank. They require you to tie up your money for a period of time but can have higher yields (although not much today). Interest earned is subject to taxes.

He suggests you go to www.bankrate.com to look at rates. Best rates as of 3/27/11.

1 year: 1.25%
2 year: 1.5%
3 year: 1.75%

Internet Banks

You can find them included in bankrate.com above. [I think our choice below, ING, is in this category; although it does not show up on bankrate.com.]

Treasury Bills

Know as T-bills. These are backed by the federal government. They have maturities of 4 weeks, 3 months, 6 months, one-year. He says all but the 4-weeks are purchased directly from the government. Earnings are exempt from state and local taxes.

Go to http://treasurydirect.gov/ to purchase. It looks like they are currently (March 2011) paying well under 0.5 % for the shorter term bills.

Tax-exempt Money-Market Funds

See the book for more (as I do not have to worry about this).

Buying Insurance

He says that one is negligent if one does not purchase insurance: auto, home owners, medical, and life insurance. He also recommends disability insurance (which I do not carry, not a bad idea; I built up my sick leave as my disability insurance).

Most of his discussion is on the difference in term and whole life insurance, recommending term (and investing the difference according to the principles in the book).

For term he suggests you consider:

  • Renewable term. He says decreasing term will work best for most families with an investment plan as you insurance needs will diminish over time (and as premium rise over time).
  • Or level-premium insurance to cover extended period of insurance needs (I have some of this).

For term insurance rates, see http://term4sale.com/. He recommends buying from a firm with no less than an A rating with AM Best.

Variable Annuities

This is another life insurance vehicle, which he recommends avoiding, that combines insurance and investment. He thinks you can do better by getting insurance separate from investing. But if you wish to buy such, he suggests buying directly from TIAA-CREF or Vanguard rather than through an agent.

What we do for our cash funds (including our emergency fund): ING Orange Savings Account. Paying 1% (3/27/2011). They advertise: “No minimum, no fees, no catches”. This has been the case with us. http://home.ingdirect.com/index.html. You open an on-line account and link it to your checking. Then you can transfer money easily from one to the other. We have 8 of them: emergency fund, home improvement, college (almost done!), weddings (one more to go), car purchase/maintain/repair, property tax/propane, vacation, special giving. 6 of the funds get monthly transfers from our checking account, 2 of them get influxes twice a year when I get three paychecks in a month.  I pull from them as needed. It takes about 3 days.

What we do for expected large, future expenditures – Much of this money is in our INGs above.  But based on advice from our financial counselor: we have also been using an account with https://www.ftjfundchoice.com/, their Litman/Gregory Capital Preservation Fund. I am not sure what all is in the fund but it has been returning about 4 – 5% per year. The value does drop some when the DOW goes down but not much. Returns have been good enough for me to keep there. You may have to use an advisor to set this up.

Next time: Stiff the tax collector

The above is from my on-going study on investing, from Malkiel’s  The Random Walk Guide on Investing. For more, see the index page to my full summary.

Diet, Health, Personal

Health journey: progress, regression and renewal

Surprisingly my last post on “my progress toward health” was last June. It was titled: “Initial goals accomplished, heading to second base.”  Baseball is not likely the best illustration for a journey to health as health is not something accomplished in 4 steps but as something gained ever a lifetime of good habits.

From June though Betsy’s wedding in October and beyond, I continued to make good progress. But as life sometimes does, November and December brought some regression and struggles. It started with significant time on the road and lots of holiday eating (too much chocolate around; a real problem to me). Then I got the shingles; and as I recovered from that, I got a flu. Through all of this, my exercise routine become very hit or miss (mostly miss). So over the weeks I gained about 7 or 8 pounds and dropped some toning.

But since the first of the year, my health and habits have been renewed, as I re-started regular exercise and better eating, I have dropped much of the weight gained and the tone is returning.

Running again (for now at least).  Last spring I started running again (I did some running in my early 30’s but quit after an injury). When I finally got to my initial goal of 3 miles (5 kilometer), I started experiencing some pain in my knee again. Rather then give up as I did 20+ years ago, I decided to have it examined by a specialist. The doctor did a series of x-rays but did not see anything wrong. He gave me some strengthening exercises to do, which I did over late summer and early fall; only to have the knee pain return when I got up to 3 miles again.  I was convinced it was bad running form or perhaps a weakness in a set of muscles around the knee. In a final attempt to make running work, I called the doctor’s office to see if I could see a physical therapist who could work with me.  I have been doing that. He found my leg a bit longer than the other and has given me a small pad to put in one shoe. And he found that my hamstrings are very tight and has given me some specific stretches and strengthening exercises to do.  We will see. I am re-building my mileage now. It seems I have trouble when I get to 3 miles.

It is good to be on the road to health. It is well worth the effort. I see so many of my peers on another road.

The above is from my on-going series on my health journey. For an index and summary, see http://dbarfield.org/healthdiet/

Uncategorized

Investment advice: the only sure way to wealth is regular savings

A widely held belief is that the ticket to a comfortable retirement and a fat investment portfolio are instructions on how to allocate your assets and what extraordinary individual stocks or mutual funds to buy… The harsh truth is the most important driver in the growth of your assets is how much you save, and saving requires discipline.

Rule 2 – Keep a steady course, the only sure way to wealth is regular savings

This is a meaty chapter. I will only share the parts I think are the most helpful. The heart of this chapter is his practical advice on places to cut (savvy savings tips).

1. Pay yourself First – The best way to ensure that you don’t spend every nickel of every paycheck is to set up a plan so that you never get your hands on the money in the first place. You can do this by establishing a payroll deduction plan where you work.

He esp. advocates plans that allow you to save for retirement with tax advantages through your employer (e.g. a 401k).  And if your employer matches all or part of your contribution, do everything you can to get started.

My input: While we all wish would have started earlier, now is the time to get started. Start small if you need to, but get started. However, as important as saving for retirement is, you may have to “pay yourself first” to build your emergency fund, car repair/replacement fund, etc. If you don’t, you might get started on retirement only to get derailed with an unexpected need. We use ING Direct’s Orange savings account. They are on-line accounts you link to your checking account. You can set up regular drafts and then move money back to your checking accounts when needed.

2. Find (or do your own) “Save more tomorrow” plan

Malkiel cites some fascination work by two economics who applied psychology to economics to encourage most consistent retirement savings. It is difficult to get started as most people fully spending their paycheck and they perceived a start in savings as a pay cut. Individuals weigh losses like this more than the gains of the savings. In a “Save More Tomorrow Plan”, instead of making a start today, an employee commits a portion of future pay raises to retirement savings. Where implemented has been popular and has high retention rates.

3. Make Out a Budget / change a spending habit or two

  • Ben Franklin: Beware of small expenses; a small leak will sink a great ship.
  • Even if you don’t want to live on a formal budget, he suggests you track your expenses for 2-3 months. Separate your expenditures into two categories: necessary and things you wanted at the time. Learn and reduce the unnecessary so you can save.

4. Think about opportunity costs ($2 today is really $16 at retirement)

What is the cost of a $2 treat at McDonalds (or fill in the blank)? If you recall that time is money, your realize that $2 today (at 7.2%/year) is $4 in 10 years, $8 in 20 years, $16 in 30 years, $32 in 40 years. So if you are in your 20’s today, multiple your expenditure by 16 times to figure out what it might be costing you at retirement. And if you change a habit, you can multiple the savings time after time. Remember, $300/year at 8 percent over 40 years adds up to $90,000.

5. A dollar saved is NOT a dollar earned (it is more).

Why? a dollar saved is much more than a dollar earned because taxes reduced earnings to far less than a dollar.

Here’s another idea:  When you go out to eat with kids, offer them $1 if they will drink water instead of soft drinks. It keeps the money in the family, teaches the kids to forge present gratification, and the water is healthier for them.

6. Pay Off Your Credit Card Balance.

“Credit cards are the crack cocaine of the financial world.”

“Keeping a balance on your credit cards is about the worst financial move you can make.”

Strategies for Catching Up

1. Downsize Your Life

“There is no other way to make up for lost time than to start a rigorous program of savings now. You have not other choice but to be frugal.  It may mean downsizing.

2. Consider Pushing Retirement Back a Few Years

Here are some sites with help on retirement planning:

  • Fidelity.com
  • Morningstar.com
  • Trowerprice.com
  • Vanguard.com

The Millionaire Next Door

Results of a 20 years study on the wealthy in America:

  • Most people who live in expensive homes and drive luxury cares do not have much wealth.
  • Conversely, many who are wealthy don’t live in fancy neighborhoods. Nor have the earned advanced degree or inherited wealth. They do not appear to be rich.
  • Wealth is most often the result of a lifestyle of hard work and the discipline of regular savings.
  • “Getting up in the morning and knowing that there is no mortgage on the house, every bill is paid in full and on time, is the most wonderful feeling in the world. It is a lot better than buying a $5,000 watch that will be used only to impress someone in a $1200 suit. I do take great family vacations, go to dinner a few times a month and move my own lawn. I do not deprive myself of anything I really want. I just don’t want the latest things that are being peddled on TV.”

Next time: On Insurance and Cash Reserves

The above is from my on-going study on investing, from Malkiel’s  The Random Walk Guide on Investing. For more, see the index page to my full summary.