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Nothing is Everything

I’m a fool for doing this, but I do read some comments on Facebook posts. I saw a rather touching one recently, where a young woman noted, “When you have

How to plan when you don’t know the future

Source: Yahoo finance We live in uncertain times. I can’t think of any time in my life that that statement wasn’t true—we can never know the future. When it comes

Taxes: we’re not Europeans

We don’t want to pay as much tax as the Europeans do. How many times have you heard that? If less than 1,000 times, congratulations—you live without internet service. But,

Anything but money: having self worth and control of your life

In his most recent newsletter, former Wall Street Journal columnist Jonathan Clements observes (correctly) that most of us will never be fabulously wealthy, that we should stop feeling bad about

Should you pay more taxes?

Embed from Getty Images We’ve all been flooded with rhetoric lately on the necessity of either a) tax cuts or b) tax increases. It’s been on my mind lately at

Nothing is Everything

I’m a fool for doing this, but I do read some comments on Facebook posts. I saw a rather touching one recently, where a young woman noted, “When you have kids, they’re your everything”. Boy, do I know what she means. In my uber-Mommy phase, I went so far as to wear a corduroy jumper  appliquéd with a teddy bear carrying a Christmas tree, just because it would delight my then-little daughter. Luckily there are no pictures.

Over time, I’ve also heard people declare their spouse, lover, job, and pets to be “everything”. Then there are the magic bullets we are asked  to believe in: the right eating program (vegan, low carb, low fat, clean eating, snore…), the cure for allergies, the perfect drug, the cure for pain—cancer—aging… Or the magic investment program that will make you a trillionaire without risk or worry or much effort on your part…gold, market timing, 1000s of methods of stock selection, buy and hold.

None of this is right or true.

Being the omniscient person that I am, I actually have the right method: diversify!

Let’s go with the personal, first. People who make kids, or a spouse, or any other person their everything tend to lose, not only that person, but just about everything else. So in the event of a divorce, or death, or just the time of life when they need to get their claws out of the other individual, they find they have nothing left.  My mom was my dad’s everything for more than 50 years; he disintegrated after her death. Kids grow up and you’re stuck with the spouse you used to have. Or you find yourself at 50, with no career, no wardrobe, out of date competencies, and a divorce. Sure, you love being with that adorable toddler, but make yourself get out without them. By 12 or 13, they won’t want to be your everything. I used to have a sign on my bedroom door:

Are you bleeding? Is the house on fire? Then, don’t knock.

Worked great with my kid. Not so much with the ex, which is at least one of the dozens of reasons he’s an ex.  And BTW, for heaven’s sake stop using your kid, dog, or cat as your FB profile picture. Your own identity will always be important.

All the magical bullet medicine is just one of the reasons I support universal healthcare. Hardly a day passes without some miracle nutritional scheme or magic cure on my Facebook feed.  The years since the discovery of penicillin and polio vaccines have made us all worship at the magic pill church—that there’s an easy cure for everything if we just swallow the (highly profitable to pharma and biotech companies) right pill or program of eating. Universal health care might put some restraints and cost controls on medipharma’s tendency to nuke everything, and if one bomb doesn’t work, 7 or 8 will be better. I’m way more worried about getting too much intervention than not enough.

Hearteningly, I am also beginning to see articles cautioning how over-medicated, endocrine disrupted, and un-resistant to bugs our bodies have become. Michael Pollan has offered us probably the most sensible advice: Eat food. Not too much. Mostly plants. No mention of juice cleanses or meal kits. Simple diversification.

And finally we get to my corner of expertise—investments. Scratch any two investment managers and you’ll find three opinions on what the correct investments are. What is the best allocation, the best asset classes, the best tax home? Does all this matter? Sure, that’s what we get paid for, and a good allocation can make a difference, a small difference but spendable in a big enough portfolio. But I’m here to declare something radical: the biggest difference is selecting a decent diversification and sticking with it.

That can be a target date fund. Seriously. I have some real problems and reservations about them, but it’s way better than putting all your money in the S&P 500 fund—which is still better than picking a stock or two that you’re sure is hot—or the so-called stable value fund. A target date fund gives you some diversity.

But should you put 50% of your stock allocation in U.S. and 50% in international? 2/3 US, 1/3 international? 10 funds instead of 12? In the big scheme of things, I can fiddle with allocation projections to give you just about any result you want, given your risk tolerance. But the best answer is—it doesn’t matter nearly as much as long as you diversify.

Accumulate something you haven’t spent on meal kits and Tofurky, then pick an easy, diversified fund. Once you get into 6 figures, you can start to benefit from selecting your own allocation—the small difference in specific allocations will start to be visible. And even though it’s heresy to many financial planners who salute the flag of mutual funds, I don’t think you’ll necessarily end up in a trailer by the river if you buy a few individual stocks. But don’t make those your everything, either.

Caveat: no specific investment advice is intended. Your individual investments should be selected based on your goals, risk tolerance, and other individual factors.

 

 

How to plan when you don’t know the future

Source: Yahoo finance

We live in uncertain times. I can’t think of any time in my life that that statement wasn’t true—we can never know the future. When it comes to investing and the stock market, predictions are pretty much worthless—since I bought my first stock at 28 years old, I’ve heard just about everything: don’t buy stocks now (whenever!), bonds are not really safe, Dow will hit 30,000, Dow will go down the tubes.

Most recently there was the expectation that the market would crash if the current incumbent was elected. Now there’s the worry that it will crash if he’s impeached. That might have some basis in fact. The S&P 500 declined about 50% from 1973 to Nixon’s resignation in August, 1974, according to this article. (While I remember Watergate, I wasn’t all that interested in the market at that time.) But as the article makes clear, a lot of other economic factors impacted that recession.

Analysis is perfect in retrospect. The best time to invest is usually some time before you did. Those of us who have faced challenging life circumstances—divorce, unemployment, illness—also know what it’s like to try to plan the future when that future seems radically altered. During those times, people often believe they have no future. But we always have a future (unless we’re dead); it’s just a different future than what we planned.

As I wrote in my client newsletter the day after the election (email me if you want a copy) we can take some protective steps no matter how uncertain our personal or political future seems.

Build an emergency fund

There’s just no substitute for this. In the middle of a crisis, it’s hard to increase it, so do your best to build it pro-actively. And if you’re in a situation where you need to draw it down, do so in the most frugal manner possible.

Improve your earning power

Get more education, build skills, get quality career counseling, and get out of the office and network. Think through ways to build a side income—gig economy, small business startup with LOW or no investment, whatever you can do.

Think through whether it really makes sense to quit your job to start a business: could you test the idea part time? Have you written a business plan and had someone else vet it?

Most important, guard against lifestyle creep. When you get a raise or earn extra, hold on to it! Use the improved earnings to build up your personal safety net.

Diversify your investments

For at least the past 10 years, I’ve been hearing how bonds are a terrible investment. During that same period of time, the Vanguard Total Bond Index mutual fund has had an annualized return of 4.17%–not great, but better than leaving it in your mattress, and beating inflation handily. People who had 40-50% of their portfolio in bonds during the 2007-2009 crash lost far less than those who were 100% in stocks. But in the doubling of the market after the crash, people who had abandoned stocks lost a ton of potential increases. Neither you nor I nor any of those genius active fund managers are going to make the right single bet on the market roulette wheel at any given time, so the safety move is to spread bets (investments) widely.

Take care of yourself

Making yourself sick is not going to cause one bit of change in an ex-spouse or corrupt politician. Eat well, see the doctor and dentist, exercise, and get a hobby—build yourself up and distract yourself with pleasurable activities to control how much you allow yourself to get worked up. People make very poor financial decisions under stress, so delay major decisions until you can think straight and get some expert input. On the other hand, don’t become paralyzed—not to decide is to decide (Harvey Cox)—and avoiding decisions for very long periods mean you’ve lost control over your own life.

Join something bigger than yourself

Times of turmoil are great times to join a group, take a class, do volunteer or advocacy work. You’ll feel less alone, find ways to get input on personal decisions, and learn how to exert influence on issues that concern you. Studying history, learning to draw, joining a book or investment club, or becoming active in a political group can all impact your personal success, life satisfaction, and ability to envision a future you can plan for.

 

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Taxes: we’re not Europeans

We don’t want to pay as much tax as the Europeans do. How many times have you heard that? If less than 1,000 times, congratulations—you live without internet service. But, I still retain an old-fashioned interest in verifiable facts, not just what I’d like to be true. I hope one or two readers still feel the same way, so let’s take a look at some numbers on just who pays what taxes, and what those taxes pay for.

The moment you delve into comparing countries, you have to contend with currency conversions, buying power and the cost of necessities (what’s a middle class house in Chicago vs. Lyons vs. Haarlem?) so of course we can argue “not comparable” whenever. We work with what we have, and what I found was some very interesting data on the Forbes website. Forbes states all figures in Euros, but I’m going to use a handy dandy currency converter to put this all in U.S. dollars. (I wish these figures were newer–2009–but it isn’t easy finding facts that are up to date. I just don’t know where all those Freedom Caucus people can get their information.)

Let’s look at a couple earning $108,667 (100,000 euros) with two children. Here’s what Forbes says their after-tax income would be:

United States (overall—some states like Illinois have higher taxes) $84,760
France $78,029
United Kingdom $72,154
Germany $73,676
Netherlands $64,113

 

I could add more countries, but as you might expect, taxpayers in countries with small population bases (Netherlands, Norway, Denmark, etc.) keep less of their gross because there are fewer taxpayers to pay for services.

So, we ARE better off by at least $6,000 and maybe as much as $20,000? Wait a minute—you get what you pay for. And our mythical couple is going to have to pay for a lot more out of that after tax income—stuff that is already paid by government programs in these other countries. I’ll admit I don’t have the specifics on every policy in every other country (but would welcome input from anyone who does), but I do know a few expenses our model couple would need to cover out of pocket:

  • Yearly deductible for health care. Mine’s $3,500/family but employer plans can range anywhere from about $2,000 to $6,000. I’ll be conservative and use just $2,000. Let’s assume the parents’ employers cover all health care premiums—increasingly rare, but I’m trying to be conservative here.
  • Savings needed to cover $30,000 in college costs per year for each of two kids—I’ll again be conservative and assume the kids aren’t going to Harvard, and are 2 years old and newborn, so the amount needed will be on the low side. If the kids were older, more would need to be deducted. According to the SavingForCollege calculator, the parents would need to be saving $613/month for the 2 year old and $558/month for the newborn: a total of $14,052/year.
  • If these parents have such young children, they’re probably not very old themselves. Nevertheless, since in the US people are “free” to pay for their own long term care, and this is covered by many European health systems, let’s estimate a low $1,000/parent per year for long-term care insurance: $2,000. (forget saving for the actual cost of care—it would about double the amount needed if the parents are currently in their 30s and can save for 40 years).
  • I’m not including the value of the living allowance that is given to college students in some countries (Netherlands), the free student exchange programs that are routine, the excellent trades and vocational schools available to non-college Europeans (and which are hard to get at any price in the U.S.), the lump sum children’s benefit given to parents upon birth of a child, or the cost of co-pays and prescription drugs, since these vary and I wanted to look at just a few things we can agree on. So how does that math look now?

 

US $84,760
health care deductible (cost of insurance premiums not included) -2,000
college savings -14,052
long term care insurance -2,000
what you actually have left after being “free” to pay for those services yourself. $66,708

 

Another “but wait”—what if mom and dad are both working and need to obtain child care? In my neck of the woods that’s going to cost around $20-25,000 a year, but Europeans can pretty much depend on free or very low cost service from shortly after the child’s birth. So now, our model couple could easily be down to $46,708 after paying for the same services the European family would get for free (or greatly reduced costs). I’ll try not to go on about the paid-for health spas that are routine in Europe, the far-more-luxurious birth center experience, the well-child checkups and assistance, the earlier retirement age, the longer paid vacations, guaranteed paid maternity leave, the housing assistance for the elderly and low-income families…

Yeah, I’m glad we pay such low taxes. And that we get what we pay for.