Archive for General Financial Planning

Amazon, Whole Foods, and you

The takeover of Whole Foods by Amazon was approved this week, and we’re told that by Monday we could be seeing some big changes in the whole grocery business.  This has occasioned an awful lot of clothes-rending on the internet, and even Robert Reich (who I normally respect) has weighed in on what a terrible thing this is. Now Reich is a brilliant guy, and I’ve never been Secretary of Labor (although I’m pretty confident I could do a better job than the current incumbent), so I’m only going to argue here out of my own experience. I think the picture is actually more nuanced than that. So, here’s my take on some of the most prevalent commentary.

Amazon will monolithically rule the entire world of commerce. In my lifetime, just thinking about the grocery business, I’ve seen purchasing habits go from mom and pop stores (not always the cleanest, freshest, or best stocked), to a whole bunch of grocery stores (in this area, National Tea, Jewel Tea, A&P, and later Dominicks) to only a few bigger players and larger stores (Jewel & Dominicks). There once were some pretty seedy little health food stores that smelled strongly of carob and fermenting apples. I, personally, was thrilled when about 20 years ago a now pint-sized Wild Oats opened in Evanston—such a difference in quality! Bigger national players bought regional chains (Jewel has been sold countless times, Dominicks went kaput, and Roundy’s just bought Mariano’s). Even in health food stores, Wild Oats bought People’s Market, Whole Foods bought Wild Oats, etc. At the same time, I’ve seen more boutique specialty stores open (and close)—Fresh Fields, Fresh Market, Valli’s produce.

I do think I’ve seen a startup->buyout->behemoth in virtually all retail, and eventually there seem to be boutique spinoffs to serve special needs. Even within the organic foods market, smaller producers are routinely sold to larger entities. Applegate is owned by Hormel, for example. If you’ve ever tried to produce a product, eventually you reach the limits of scalability—you have to buy in larger quantities, or manufacture and distribute more efficiently, or compete not only on quality but also price or go out of business as the founders get old or exhausted. The big fish with the better supply chain and distribution network take over. For now, Amazon is the best game around, and I don’t know anyone who hasn’t shopped with them.

Amazon will force everyone to shop with it. Let’s think about why Amazon is such a success so far. Because they have things, and can get it to you fast. Example: I needed a $3.00 item, a new roller switch for a lamp—this is about the level of electrical repair I thought I could handle. Went to Lowe’s—nothing. Went to Home Depot—had one, but it turned out to be the wrong size, and that was all that was available. Went to locally owned Ace Hardware to get some personalized advice. Sent me home with another one—also the wrong size (same as the one Home Depot sold me, so much for advice). Went to a local electrical supply outlet, which turned out to be shut down. Went to a lamp and lighting store—they didn’t carry parts. These excursions took the better part of 3 afternoons, and I still didn’t have the part. And guess where I found exactly the right thing? A five pack for $10, delivered free.

From my perspective, the chief reason I order from Amazon is that I can find what I want without chasing all over town, and it will be in stock. I’d like to have that kind of reliability locally, but I don’t. And for about the past year, Whole Foods has been woefully understocked—we waited 6 weeks for crunchy house brand peanut butter. Years ago, Barnes and Noble was a thrilling improvement to places like Kroch & Brentano’s, but B&N has nowhere near the selection that Amazon offers.

However, two of my favorite independents: Bookends & Beginnins in Evanston and the Seminary Co-op in Hyde Park, do a far better job of peddling interesting titles I would never discover on Amazon. Farmer’s markets, gourmet specialty stores, and single product shops (like the Spice House) might be the food purveyor counterpart.

Amazon will jack up prices. Certainly a possibility, but it didn’t happen yet in the book world. Amazon, even after years, is still the lowest price in the book trade. In my view, Amazon still competes very strongly on price and selection.

The deal only benefits shareholders.  Okay, I admit, I’m one of those shareholders, of Whole Foods. I’ve owned it forever for two terrible reasons: I have liked shopping there (even though I think it’s drastically deteriorated over the past year), and I kept hoping it would “come back” stock price wise. This idea of the greedy corporate octopus that doesn’t care about anybody but (rich) shareholders has me a bit bemused. Because it’s extremely likely that those (rich) shareholders are YOU! If you have any money at all invested in stock mutual funds—S&P 500 funds, Target Retirement funds, even specialties like the Fidelity Contrafund or Parnassus—you own at least Whole Foods and in most cases, Amazon. Many people with 401ks or other workplace retirement plans have no idea what they actually own, and just want the value to go up. How on earth can value go up if companies don’t keep an eye on profits?

And the one I’m ACTUALLY really worried about, but no one else seems to be: The merger will result in loss of community.  One of the main ways I get out of the house and see my neighbors is at the grocery store. I see community events posted. Whole Foods used to offer talks, charity events, demos by local producers, and classes. Those have slowly disappeared in the past year, but I did still have a chance to chat with random strangers, the regular store staff, and there was somebody to complain to and voice concerns about products. Now it seems we’re moving to a society where we’re holed up in our individual homes, potentially ministered to by drones and robo-communications, and it’s dang hard to raise anyone to attend a club meeting anymore.

Independent bookstores and cafes are actually stepping up to this role, but it’s only a very small and elite subsection of the neighborhood that actually attends these events. But we are increasingly losing the agora, and I don’t know how you quantify the value of that.


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.