Tuesday, August 30, 2011

Festers financial advice part 3

The first rule of investing is don't lose money.

A co-worker asked the other day what to do with his 401k. This is a very tricky question and a lot depends on your circumstances, the choices you have in your 401k, when you plan to retire, etc. However, I can tell you what I have done and I decided to go this way after much trial and error. The company I work for matches up to the first 4% of your contribution. There are limited choices and the two main choices we are offered are stock funds and bond funds. The choices don't really seem to be all that diverse, there are several choices but they all seem to be really similar in composition for their group (i.e. stocks, bonds). If given any choice to invest in I recommend the Permanent Portfolio, which is outlined in Harry Browne's book Fail Safe Investing. However, for the 401k this was not anywhere near an option. So what I have done is contribute the 4% that gets matched (and in my case the match is 100%) I invested it in a low yield, but stable bond fund. Technically inflation is growing at a faster rate than the return on the bond fund I am invested in, but because of the company match for every $1000 I put in the company matches $1000, and the yield is 3% or so. I am not losing any money in actual dollars and compared to my counterparts who invested in stocks that have seen negative yields over the years even after the matching funds, and after the company match I am making about a 103% return on investment, this has got to be a win. Where my co-workers have seen declines in the total dollar value of their 401k, I have only seen gains in recent years (at one point I was more foolish and lost a lot of money trying to win at the rigged game of the stock market, you live and learn sometimes).

Here is what you need to know about mutual funds, almost none out perform the market over the long run. The manager of the fund always gets paid, even when the fund loses value. The stock market has reached a point where smart people have become very good at being vultures using its ups and down to get rich at other peoples expense and you are part of the “other people” group. I say no more than 25% of your saving should be in stocks, and that 25% should be in a fund like the vanguard 500 fund where they do very little active management and have a low expense ratio, forget about these supposed “experts” who suck, and forget about thinking you are the next Warren Buffett, if you are then you don't need my advice.

One last thing, NEVER, EVER, EVER, put all of your money into one stock. The co-worker that brought me to write this post had a large percentage of his 401k in the stock of the company we work for. This is the worst possible idea. If the company goes belly up or suffers some major downfall (think Enron) then you are not only out of a job, but your entire savings has been wiped out as well.

Monday, August 29, 2011

Fester's Financial advice part 2

I was having a discussion with a co-worker the other day and he mentioned that his wife wants to retire in 5 years, but he is worried about the financial hit they would take if she were to retire and asked my opinion on what would be the best investment with a goal of early retirement for his wife in mind. I answered “pay off your house”.

I asked him “how much is your mortgage?” he said $1200 a month. He still owes over $100,000 on his house, but it is still his best option even if he is currently paying a low rate of interest. Here is why: If you can be fairly sure of getting about a 5% return on your savings/investments you would need $240,000 in savings to earn $1200 a month from your investments, and possibly more if you figure that you may have to pay taxes on the interest you earn. However, you could get the same effect to your lifestyle by paying off the house, so investing $100,000 into your house is like saving or investing $240,000 in a vehicle that has a 5% rate of return. Right now they combine their incomes and need to bring in an extra $1,200 a month just to cover the mortgage. In a scenario where the house was paid off his wife could at least change to part time work and take a $1,200 a month pay cut and their lifestyle would not have to suffer at all.

Thursday, August 25, 2011

Tyranny in the desert

This is sad, LA county forcing people off of their land. The speculation is that they are doing this because if a highway is put in the area, the land will become valuable, and the same government insiders who control the nuisance department, also would have most inside information about where any potential government land development would go.

Wednesday, August 24, 2011

Fester's financial advice

I could have been a personal financial planner, and I considered it at one point. If I thought that anyone would actually listen to my advice, I might have done it. Unfortunately my experience is that people with financial issues rarely want to take the actual steps needed in order for them to get their lives in order, so I don't think I would find that line of work very rewarding. I can see myself giving advice and watching in bewilderment as the advice I give is repeatedly ignored, even by those who came to me seeking advice and over time becoming less and less satisfied with that as a career.

It seems that with tough financial times, more people are open to listening to sound financial advice now.

If I could give people one piece of advice and nothing else, I would tell them to save a little bit of money. No matter how in debt you are, the key to wealth is keeping the money you make. If you are in debt, this seems counter intuitive to save. However, the truth is that you will never escape the debt cycle until you start to save. Make any adjustments to your lifestyle you need to accommodate this. Save something, anything! For most people the minimum I would say is $25 a week. It seems like the best advice would be to pay off debt first and then save, but I believe this to not be the case and in studies done it seems saving is more important than paying off debt. You get the spiraling debt effect if you don't save. What this means is that you find say $200 a month in savings by cutting out some partying or something, you put that towards your credit card and neglect to save any money. Then your car breaks down, so what do you do? You put the repairs on your credit card and now you are right back to where you were, or worse off! Only once you have a significant enough savings to cover any likely emergency would I then recommend paying the debt down, and even once you are in this position I would still recommend you continue to save a little so if you save $200 a month for 5 months and get a cushion of $1000 and decided this is enough to cover most emergencies you are likely to encounter, I would say continue to add $20 a month into your savings and use the other $180 to pay the debts down). Once you are ready to start paying down your debt, I would pay for the lowest amount owed bill first, so let's say you have a Sears card on it and you owe $1000 on it, pay that off first, then use the money you save from both the minimum you were paying on the Sears card, and the extra you were applying to the principle on the debt to pay off the next lowest debt you have, keep doing the same thing until you have all of your debt paid off and don't get any new debt (that is what the emergency fund is for, to pay for any new unexpected thing that may come up).

If you follow this advice, and stop accumulating new debt, you will be out of debt within a few years and can get your life on track. Taxes are slavery, but debt is voluntary indentured servitude to the banksters, and neither are good if your goal is personal freedom.

Tuesday, August 16, 2011

Capitalism, A Love Story... Review

I watched “Capitalism-A love Story” a couple of nights ago. I don't think Michael Moore's definition of capitalism is the same as mine. He seems to think it is a political system, and I don't. It is true some people confuse fascism and capitalism, but capitalism is the free market at work without government involvement, the second the government gets involved in a transaction between two parties it ceases to be a free market transaction and becomes something else. Whether that interference is through regulation, taxes, government granted monopoly, or other medium, it is no longer a free market transaction and should no longer count as an act of capitalism, at the minimum it becomes an act of corporatism.

I often wonder if Moore believes his own crap, since in his movies he seems to find the worst examples of the point he is trying to illustrate and this to me hurts his overall message and I wonder if it is intentional.

In the case of Capitalism, he cites a corrupt government judge who shut down a government youth prison, contracted with a “private” firm to build a new youth prison and then the new prison and the judge shared the profits that were made by imprisoning teenagers. I just don't see a company hired by the government, getting all of its business from the government and working with the government courts to pull off a scheme like this as being capitalistic in any way. When a “private” firm, earns 100% of its revenue through government contracts can it still be considered to be independent from the government?

He profiles two people who had their homes repossessed and expects us to feel sorry for how they were mistreated by the banks. I feel sorry for some people who have had their homes repossessed, but he seemed to find two of the worst examples possible. First was a guy whose family had owned the property he was living on for four generations. To me this sounds like he inherited property that should have been paid off 100 years ago, so how the hell did the bank lay claim to it? The only explanation is that he refinanced the property and cashed in on the equity at some point and then was unable to pay it back. Second example, a family that had owned their home for 22 years before it was repossessed. 22 years and they still are upside down? They had 22 years to pay off the house and never did? You know my philosophy on home ownership is that if it takes more than 15 years to pay off your home, you cannot afford it. Besides how much could they possibly owe on the original mortgage after 22 years? That house was not an expensive house now and 22 years ago it would have been far less expensive. It is hard to feel sorry for them knowing the likely back story is that the kept refinancing the equity in their house even though they are poor as dirt, until it came back to haunt them. Also the true failure of capitalism in this case is that the banks gave so many loans to those who never should have gotten them, and they did this because of political pressure and unspoken guarantees of a bailout.

He spends a lot of time focused on a couple of regional airline pilots and how little money they make. The thing is that capitalism is a supply and demand equation, there are far more people who want to be pilots, then there is demand for commercial pilots, this means a pilots skills simply don't command high salaries, especially those only certified for smaller airplanes. I feel somewhat sorry for them, but really if you can't live on a pilots salary, don't go into the field.

He acts like a fool driving around an armored car to various banks trying to get taxpayer money back. However, the banks (as evil as they are) did not take the tax money from the citizens in the first place, nor did they have the authority to bail themselves out with tax money, only the government had that authority, so it seems like a problem with the government misallocating tax money more than a problem with capitalism.

Overall I was not impressed. He made almost no convincing arguments, his solution at the end was stupid “support democracy”. There were a few funny moments, where he had clipped together funny bits, but it was not enough to save his movie from the overwhelming problem of showing government failures and blaming them on “capitalism” and showing peoples poor choices and blaming them on “capitalism” as well. Maybe the movie would have worked better if he had defined his meaning of capitalism at the beginning of the movie so we would all be on the same page while watching it. Because if his definition of capitalism is the government using its power to force companies to bribe government officials and then reward the companies who are the best at bribing them and harm companies that are the worst at bribing government officials, then I would agree capitalism under that definition sucks.

Ron Paul like floor 13 to the media, pretend it does not exist

I know John Stewart does not support Ron Paul, but even he can see the sham that the media is when it comes to discussing Ron Paul.

Wednesday, August 10, 2011

Another reason not answer the door

Ding Dong, I am from the government and I am here to help (you out of your money that is).

Monday, August 8, 2011

When the FHA gets out of the way, Here comes the neighborhood!

I have noticed my neighborhood has improved in the last few years, a much higher quality person has been moving in to my little community and petty vandalism and petty theft is down. It seems like new people moving in are also better off financially, have a better education, etc. Since the cost of housing here has also been driven down over the last few years, you would expect the opposite. So what might cause this apparent dichotomy? The answer is simple, the FHA will not loan for my complex since it is a “Patio Home” community and that is simply too unusual of a type of housing for the FHA to know what to do with it, so they just disqualify it from the get-go. For those that don't know a patio home is a stand alone house connected to its neighboring house by a patio, so its a cross between a tradition home and a town home.

How does not qualifying for an FHA loan improve the neighborhood? A few years ago when it seemed like any loser with a $1000 and a pulse could qualify for a home loan, the neighborhood really started to go south. There were a lot of shifty, unstable types moving in. After the housing crash most of these people had their homes repossessed by the banks and they were kicked out. This created a dramatic drop in the value of the homes here, and good deals were to be had for anyone who could qualify. However, the standard for qualification went way up, you need better credit and a higher down payment now than what the banks previously required. Now the only low down payment, high risk borrower who has any chance of getting a loan has only one choice, the FHA and those people can't buy a house in my community since the FHA does not loan for patio homes. Over time the neighborhood has improved as the bad risks have failed to keep up with their mortgage payments, and the people buying the houses vacated by those people are middle class people with decent credit and good down payments, who gravitated to the patio home community because it offers an affordable low maintenance way to get into a house with more size and features than more traditional houses on a dollar for dollar basis (more bang for the buck!). I am glad now, more than ever that I bought a home that is not "FHA Approved".

Tuesday, August 2, 2011

The Hidden Costs of "Free" Education

The other night on “Free Talk Live” they were discussing government schools and how they should be abolished. This was on the Saturday night show where they have a lot of non-libertarian listeners, so there were a lot of calls where the callers basically said “people could not afford to pay for their kids schooling if it were not for the government distributing the costs across the whole of the community”. It is my contention that people already cannot afford the “free” school they send their kids to. The pursuit of “free” schools has created massive amounts of debt for families, has financially destroyed families, has contributed to the housing crash and the recession and is partly to blame for creating ghettos in urban areas.

My reasoning here is anecdotal from the people I know around my community. In Denver where I live, across the the metro housing prices vary widely. A large 3 bedroom house with a garage and yard, can sell for as low as 150k in the poor areas of town, and upwards of 500k in some of the nicer areas, the same exact house if you move its location will double or triple in value depending on where it is located. What justifies difference in price is often the school district. Since you have to live in the same school district you send your kids to there is a migration by parents who want the best education for their kids from areas with lower quality government schools to what they perceive as higher quality government schools, along with the better school district comes higher housing prices. A family that could easily afford the 150k house passes it up because of the school district and ends up spending 300k on a house they really cannot afford in order to get their kids into a better school district. They go into debt they cannot afford, they have to finance the house using a 30 year note (which is ridiculous and if you have to extend a mortgage to 30 years, you cannot afford that house!). When they look at how much they spend on their kids education they only look at the cost of the property taxes, so they see the $3000 a year they spend on property taxes and think that they are getting a good deal for 2 kids, however they fail to include the extra 150k they spent trying to find a house in a better school district and the extra interest on that money in their calculations. They also don't see the social costs of the move by responsible parents who leave certain areas of town in mass creating pockets of ever declining areas of town that appear to be on a downward spiral that would not exist if the responsible and successful people in them were not driven out in an effort to obtain a better education for their kids, leaving behind only the less upwardly mobile. Also all of these people in housing that was more expensive then what they could actually afford was a large contributing factor in the housing crises. The societal ramifications of “free” government schools is so great that I don't believe most Americans even have any understanding of how destructive this policy has been, especially they way it is currently set up where your school is tied solely to where you live.