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Are Senior Workers As Respected As They Should Be?–A Cuppa Joe Discussion

March 29, 2012 by Average Joe 21 Comments

My dad is a GM retiree.

Where do your thoughts jump when you read that statement?

I was in a coffee shop recently where two men were talking about legacy costs…paid out to people like my dad. These were both younger workers, and the opinion seemed to be that people like my dad are an unnecessary tax on the system.

One guy said, “Those people should have saved more money. If they’d saved, they wouldn’t need that pension.”

I know that immediately many people who read this will think my dad is part of the reason GM went bankrupt. He receives a generous pension, has health care coverage and lives comfortably. He’s relatively young still and I hope he lives for a long time. That means that his benefits will continue to weigh on the company.

 

No Savings? Why Not?

 

My uncle also is a GM retiree. Around the year 2001, as the stock market experienced day after day of unnerving free fall, I happened to be standing next to him at a funeral.

Uncle: The stock market sure is all over the place. Your job can’t be easy right now.

Me: No, it’s not. Lots of people with 401k plans out there taking a beating and looking for advice.

Uncle: 401k plans?

Me: Yeah, like the one you have at GM.

Uncle: You know, I’m glad I never bothered with that. Look at all the money those people lost. I’ll stick with the pension.

At first, I thought poorly of my uncle. But for him and many others working in industry, a 401k plan was always considered “icing on the cake.” He also receives a generous pension and has health care coverage. Why should he risk hard won dollars in investments that could tank?

Because he didn’t invest online, mainly to practice internet safety for seniors, he’ll now be a burden on the system for years to come. However, the course he chose was a viable option at the time.

 

Reworking the Implicit Deal

 

This article at Timeless Finance recommends (among other things) that older Canadians should be forced into retirement by age 60. According to the author, this will energize the workforce and help young people get jobs….all at the expense of older workers.

Would this really work as intended? Will it help?

Before we tackle that argument, let’s evaluate the historical situation: it was a different game for my dad than it is for many of you and I. He worked in an era of “work for a large company to care for your family for 30 years, and then the company will take care of you.”

It was an implicit deal.

Now the deal has changed, and there’s a push to change it further. I’m sure many older workers wish the deal had been explicit.

You have to be a moron to not understand the shaky economics of our world financial situation.

  • There’s more fallout to come from the housing crisis.
  • The student loan bubble is about to pop.
  • European states are ready to topple like dominos.

But do we have to immediately jump to changing the deal for people who played the game “correctly” only to find the rules changed later?

 

Will Eliminating Older Workers Help?

 

I only told you half of the story about my dad and uncle. The other half is that both my uncle and dad are gainfully employed at the moment. They both play by the rules (their income is low enough that it doesn’t affect their guaranteed income stream from Social Security or their pension plans).

It isn’t just good for my relatives; it seems it’s good for business. According to this Entrepreneur magazine article, companies that hire older workers reap benefits as wide-ranging as:

  • Higher quality work
  • Punctuality
  • Listening skills
  • Organizational skils
  • Honesty

According to the Timeless Finance author, both my dad’s and uncle’s part time jobs should be handed to younger workers.

But I’ve seen my uncle and dad work at their jobs. Young coworkers ask their opinion frequently. In fact, the owner of the golf course where my dad works often consults him about overall operations. Customers gravitate toward them, thinking these men know what they’re doing. Both of these men possess tons of insight and knowledge help their employers succeed.

My opinion: If I still had my boner of the week segments, this Timeless Finance article would have been on it. While some of the suggestions make sense to me, and we clearly need change, I believe that we should look elsewhere for money rather than eliminate experience for youth. I also think it’s a mistake to penalize people who played by the rules as they knew them until we’ve looked under other stones.

Okay, everyone….your thoughts? Do we treat seniors fairly? Should we have a mandatory retirement age?

(photo credit: Hubert Elliot in the Rowan County Maintenance Yard Office: NCDOT Communications, Flickr)

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Filed Under: Cuppa Joe, Feature, Meandering, smack down! Tagged With: 401(k), free advice, free financial advice, Individual Retirement Account, Mandatory retirement, Pension

Cheap Disney World Tickets? That’s Just the Start

January 4, 2012 by Average Joe 10 Comments

As a “Be Our Guest” customer service fan, I’ve read article after article on how to “visit Disney on less money.” I’ve even searched for cheap Disney World tickets (by the way, most are a scam, so unless you know details about the vendor, stay away….especially eBay-sold tickets). I’m not sure any article I’ve read offers the best advice. Although you don’t have to go over-the-top crazy with expenses at the land of the Mouse, there’s no inexpensive trip to Disney: period.

Here’s the truth: there is simply no way to go to Disney on a cut-rate budget and have it not stink. Even if you find cheap Disney World tickets, you’ve still only cracked opened the door.

If you’ve decided to go to Disney without two bags of money, I have a better idea: head to the beach.

At the beach you’ll have tons of free fun with the family and not feel like you’re pinching pennies while everyone around you is enjoying anything with a price tag attached.

If you’ve saved up your hundred dollar bills to visit, here is some better advice: stop searching for cheap Disney World tickets and search instead for value.

By beginning your Disney trip with the knowledge that it’s going to be expensive, your new goal isn’t to save a ton of money, but to get your money’s worth. Sure, you may still opt for the value resort or stay off-site, but now you’re doing it with the knowledge that you’re saving money where it doesn’t count to spend it in places where it’ll add memories.

…speaking of memories, the amounts you’ll spend for each one–even on a budget–is high. However, after several trips to Fantasyland, here are my best five tips to create value on your Disney Trip:

Fast Pass1) Become good friends with the Fast Pass system. This ticketing system allows you to experience your favorite attractions without waiting in long lines. Different than parks at Six Flags or Universal, Disney’s Fast Pass system is at no additional fee.

On two different occasions, I’ve walked past people stuck in a line who’ve asked, “how much more did you have to pay for that.” Both were shocked when I answered, “Nothing.”

Do your homework about the attractions you really want to experience. On most days, Fast Pass tickets sell out early, and you can’t get another line-jumping ticket until the time listed on the one you’re holding.

Want more Fast Passes with a slow group? Send a fleet-footed family member to secure your next Fast Pass tickets the second it’s allowed, while everyone else heads toward the next ride. Remember, the person grabbing the new Fast Passes will need tickets for every person in your group when they reach the Fast Pass machine.

2) Experience Disney World restaurants, but do it at lunch. Okay, maybe there are a few ways to save money. The portions at lunch and dinner are similar in size, but the lunch menu is usually less expensive.

Here’s another scoop: There isn’t a huge difference in price between many of the sit down Disney World restaurants and the counter service options. There is, however, a huge difference in quality. Unless you want your kids chowing on chicken nuggets, hot dogs and fries every meal, schedule a few sit down options.

Once again, you’ll need to plan ahead, because geeks like me schedule all the good times early (like six months early). Reserve your seats at the Disney website as soon as possible. Use TripAdvisor or other restaurant and Disney tip sites for good dining options.

Our favorite Disney World restaurants? We’re not the average family, but here’s our top 5:Prime Time Cafe

1) 50’s Prime Time Café – Hollywood Studios

2) Biergarten (while band is playing) – Epcot

3) Whispering Canyons (breakfast) – Wilderness Lodge

4) Cinderella’s Royal Table – Magic Kingdom

5) Coral Reef – Epcot

There are a ton of great eats at Disney, and the service is nearly always impeccable. Especially if your trip involves Epcot, where there are tons of good restaurants, trying the food at a park or two is a great way to unwind and let the Disney service machine pamper you.

3) Take a nap. I had trouble with this one when a friend first mentioned it. We’re at the Magic Kingdom, and I’m going to spend how long getting my kids out to the hotel, then waste an hour or two away from the park, while my expensive-as-all-get-out ticket is on the clock? No way. Well, maybe…. We tried it.

Now, I highly recommend it. You’ll re-enter the park after your relaxing time away and immediately notice stressed out families frowning and nit-picking each other. Not you. Your family is rested and ready to again brave the crowds.

Of course, my nap advice comes with a caveat. You take naps because the best time to be at Disney (for ride lines) is first thing in the morning. If you plan to open and close the parks each day, naps are mandatory.

4) Give children a daily allowance. Although the experience of Disney parks, in my opinion, towers over the experience at regional parks or even Universal, they still pull tricks to weasel money from your wallet. I’m not overly concerned with the high price tag of the store items at the end of nearly every ride in the every park.

My problem? I don’t want to pay for and then haul home a bunch of junk that my kids will ignore the second we leave the premises.

So, we give each child a daily allowance, coupled with an explanation. Here was our speech when our kids were seven years old:

“We’re going to give you an allowance of ten dollars each day. You have a few choices. First, you could blow it immediately. That’s your option. Second, you could save it for the next day. Even if you don’t spend it, you’ll get to save this money. It’s an allowance for you to decide how to best use. So, if you save it until the end of the trip, you’ll have forty dollars for something nice. Your third option is to spend this money on nothing here, but buy something nice for yourself at home or save it into your savings account at home. It’s your choice.”

My daughter blew the money in the first twenty minutes at the park every day. Remember, parents, it’s their money! I’d rather have my daughter make a small mistake with ten dollars than wait until she’s 19 and in college where the mistakes are much bigger. Hold back the urge to stop them from buying junk.

I waited three days before having an important conversation about value and what she actually received for her money. All of the stuff she’d purchased was no longer interesting to her and she had zero cash (equity) to show for it. She’s become a much better saver since then.

My son? He went home with forty dollars and purchased a video game with twenty, then dumped the other half into his savings account.

Disney Castle 5) Don’t try to see everything. You never will. The parks are huge and the photo opportunities plentiful. Relax and enjoy what you can, because you will never ever have any fun rushing your family from ride to ride. If you try to see everything, I’ll be the relaxed guy behind you in line while you’re yelling at your stressed out spouse and children to hurry up.

Those are my best five tips to squeeze value from your Disney trip. These five tips have been invaluable to me over our seven trips to Disney over the years. Although they won’t help you find cheap Disney World tickets, they’ll save you a few dollars inside the park and help you still keep your sanity.

This weekend I’m headed to Orlando to hopefully accomplish something completely crazy. I’m competing in the Goofy Marathon and a Half Challenge Saturday and Sunday. In the contest, I’ll run a half marathon Saturday to win a Donald Duck medal. Then on Sunday, I’ll follow it up by running a full marathon to secure the Mickey Mouse medal. Because I did both, Disney will then award me a Goofy medal.

Now it’s your turn: What Disney tips have best helped your family? Or, do you skip the mouse and do other vacations?

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Filed Under: budget tips, Meandering Tagged With: 50's prime time cafe, Biergarten Epcot, cheap Disney World tickets, Disney, free financial advice, free financial advisor, Magic Kingdom, Walt Disney World Resort, Whispering Canyons Restaurant

A Goal Setting Plan that Actually (Gasp!) Works

January 3, 2012 by Average Joe 10 Comments

When I was a kid, I’d tell my mom proudly that my room was clean. After a quick glance, she’d send me back in, saying something about “my version of clean” and “her version.” While I’m still not sure what she was talking about, many people set New Year’s Resolutions with good intentions, thinking they’re pretty good.

Then they’re disappointed when a few weeks later they’ve failed.

Do you want to be a failure when you practice goal setting?

Of course not.

Let’s find a better way. Today let’s try setting goals the way that financial advisors do with their clients. I can’t speak for everyone, but this method I’m going to describe worked well for me.

Never been in a financial advisor’s office? That’s why we call this site the Free Financial Advisor (irony, huh?). Here’s what I did with my clients in early meetings.

We set goals that stick. Here’s how:

…after we chained people up and made them swear off credit cards, we’d…

…of course I’m joking.

I’d begin a meeting by asking my client “what do you want for yourself?”

Although this is the same question people ask themselves when they make New Years resolutions, I received a much different answer. People would give me the goals they thought I’d want to hear, not what they really wanted.

Most often, they’d say:

1) I want college for my kids

2) I want retirement for myself

After I gasped in feigned surprise from hearing the same answer yet again, we’d dig deeper. gauri_gasp

But let’s discuss these two goals (education and retirement) for a moment before moving on. These two goals aren’t at all the same ones that you give to yourself OUTSIDE of a financial planners office. Outside, goals are exciting. You want a new boat. You want to write a book. You want to quit your dead end job and go work for yourself.

You want to be a masked man in tights, fighting common financial planning mistakes.

Oh, wait. That’s mine.

So here’s step one: Write out your true goals. If you give yourself the goal you think “you’re supposed to have,” do what I did with clients. Ask yourself “what else” until they’re exciting. Then keep searching until you can’t dream up any more.

Goal setting sessions should include both short term and long term goals. I’d make clients outline all their goals. Here’s why:

Every goal affects the other ones. How you plan for college is going to have a dramatic impact on your retirement plan. Whether you join the country club will be affected by how quickly you get your new business off the ground.

By this time, clients think we’re done. This is the end for people who complete a New Year’s resolutions list. We’ve outlined the goals.

We’ve gotten a good start, but we ain’t anywhere near done, sister.

Next, step two: we prioritize your goals. Here’s the question I’d ask to help someone prioritize their dreams during our goal setting session. I’d ask,

“On a scale of one to ten, how important is it that you reach this goal, the way you’ve described it to me?”

Here’s what people would answer…

– Oh, I really really want all of these.

Then, I’d ask: “If you can have goal 1, but not goal 2, which would you pursue?” Using the retirement and college example above, I’d ask, “If you could give your children the best college possible, but it meant retiring later, would you retire late or find other education options for the children?”

Everyone thought I had an agenda and that I knew what they were going to say. The answer was obvious. This was the cool part for me. The answer was obvious, but not to me. It was obvious to them.

At this point, people would give a nice sigh of relief. In their mind, goal setting was over.

But it wasn’t. Although your average New Year’s Resolution was way over, we were now halfway.

My next job? If I’m a professional asking about goal setting, I still don’t know the goal. Sure, for you it’s retirement or your kids’ college. For me, the goal is an amount of money.

We’ve done a ton of work, but still haven’t actually set the goal.

How do you know how much to save for a goal if you don’t know the target? I’m often amazed when I see people saving five or eight percent into their 401k plan at work.

I’d ask, “Why are you saving that amount?” I’d usually hear answers like:

– It’s what I can afford.

– It’s the amount my company match.

– It’s the cap in my retirement plan.

I can’t remember a time someone answered, “Because that’s the amount it will take to reach my objective.”

But isn’t that what you’re really trying to do with a New Year’s Resolution? Aren’t you trying to reach a goal?

Here’s what we’d do next: in step three, I’d ask my client how much they’re saving toward each goal. My goal wasn’t to embarrass them, but it was to make them understand that there’s a lot more to goal setting than just throwing out a list of dreams and prioritizing them.

Quickly, we’d proceed to step four, finding out what each goal costs. Every goal has a simple equation to reach:math joke

Money x Return = Goal

Money can be expressed as either savings or new contributions, and return depends on the amount of risk you want to take. Both factors affect each other. As an example:

If you need to save $10 (yeah, right….but let’s run with it) and achieve an 8 percent return to reach the goal, you now have some numbers to play with.

If you save $11, you could reduce the risk you take on investment.

If you achieve a high return, you can spend money on other things, speed up the goal, or Super Size it!

Once we know these numbers, then we can proceed with step five: create the plan to reach the goal. It doesn’t take long and we’re able to

Here’s my question: how do you know which you’d do until you’ve followed these steps:

1) Write out your true goals. Both long and short term.

2) Prioritize the goals.

3) Write out how much you’re currently saving toward the goal.

4) Find out the cost of the goal.

5) Create a written plan to reach the goal.

And there you have it! You’ve successfully completed New Year’s resolutions that are sticky.

Here’s the funny part: I didn’t do this process for my clients.

I did it for me. Because as their financial advisor, I knew they were going to hold me accountable to the goal, and I needed a clear picture of the goal and what it was going to cost before I recommended a plan of attack.

If the hired help does it this way for your goals, why don’t you?

Okay, now it’s your turn: What’s your #1 priority in 2012?

Mine? Lose 10 pounds. Cost: Weight Watcher’s membership. I work better on a team. Timeframe: 1 lb. per week/10 weeks till finished, then maintain.

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Filed Under: Planning, successful investing Tagged With: financial advisor meeting, free financial advice, free financial advisor, Goal, goal setting, New year resolution, Self-Help

I’ve Joined the Yakezie Challenge

December 21, 2011 by Average Joe 10 Comments

(((Readers – today we take a break from our normal routine of aimless rambling and wandering prose to actually discuss something about blogging. I know, we don’t know anything about blogging either, but if you can stay awake through this post, I promise we’ll be back to regularly scheduled programming after this.)))

…hello, hello, is this thing on? ….uh…..hi, everyone, my name is Joe.

Hi, Joe.

….and, uh, well….I just wanted to say that I’m taking the Yakezie Challenge.

I think I’m ready. We’ve been practicing for weeks, getting our form “just right” (or more like right enough). We’re ready to take the plunge.

If I slip and say “we”, like I just did, that’s because I have a partner.

We together are taking the Yakezie Challenge. Yakezie is a group of financial bloggers who selflessly help each other promote the personal finance blogging space and who help promote each other’s blogs. I’ve read so many great posts by Yakezie members and Challengers that it’ll be our pleasure to promote more of these people and their work. In the near term, you’ll begin seeing many of them appear on our blogroll (on our Resources page).  

For the Yakezie community, let me introduce the FFA team. We’re kind of like cousin Eddie’s family on Christmas Vacation, only our Winnebago is a little dirtier.

I’m Joe, a 16 year financial planning veteran. Not only did I manage $60M working with around 200 families, I was on television and radio in my hometown dispensing financial advice. If you’ve been one of the three readers of our blog, I want to thank you.

Second, I have a partner, TheOtherGuy. He’s a ten year 13 year veteran of the financial planning industry. Generally, we keep him in the back room with a pile of code and hashtags. From time to time we loosen the chain enough to let him reach the keyboard when we need another article that actually is meaningful. Normally this will be on insurance or investing.

Although I’m declaring that we’re beginning the challenge, I already feel a strange kinship to several people in the Yakezie community already. You’ve made me feel very much at home, even though at times I haven’t deserved it. We had a ton of misconceptions about blogging when we fired up WordPress for the first time. Here are but a couple:

1) We thought “if you write it, they will come.” Here’s our understanding of how this silly “blogging thingy” worked: you threw stuff on a page and people begged you for more.

Instead, we’ve learned that there are two disciplines here (or more). You have to be able to write succinct, edible prose, but you also have to know how to expose your content to other people. I won’t be the first blogger to admit that I had no idea what a “back link” was and I thought affiliate links were connections to other people’s blogs.

2) We believed that financial blogging was a pretty small discipline. Holy $%^@ there are a ton of blogs out there. In the big scheme of things, there aren’t when compared to other fields, but I thought we’d be in a group of about 100 bloggers chasing eyeballs.

This is all the more laughable because we’re the “do your homework” kind of people. I was never the “here, I’ll take your financial plan and do it for you” kind of advisor. I was always the “I’m going to teach you what you need to know to do this yourself” dude. So, we’ve done our homework on financial planning, but ignored the blogging aspects.

Lesson learned.

What is the challenge?

– We promise to blog at least twice per week (we’ll be keeping our regular four posts per week schedule you’ve come to know and endure.)

– We promise to promote other Yakezie blogs. This will be easy. I have fun with our Blog Post of the Week! every Friday, and like making the rounds to other blogs to read what everyone else is thinking about.

– We’re going to work to place our blog in the top 200k as based on Alexa ranking in the next six months. Currently, today, we’re 549,616. We’ve been a long way, crossing the 4 million mark around October 1 and the 2 million mark at the beginning of November. It’s been rewarding to see that people will read posts whether we’re sober or talking Oompa Loompas.

Thank you to those who’ve been very supportive so far. You know who you are (I’m WAY afraid I’ll forget someone to begin mentioning names). There have been so many people helping us when we’ve had questions.

I’d also like to end with this note: if you’re a Yakezie member or challenger, don’t feel compelled to promote our site and work unless there’s something you really like. I promise, we’ll do the same. I love to network, but only when it actually is meaningful. I know that there are products I just couldn’t recommend in a million years.

As you get to know us, I hope you’ll want to send readers here for advice and humor. That’s great. We’d like to prove that this is a home for good, quality content and earn your respect.

For TheOtherGuy and I, it’s been a short, strange trip so far. I’m sure the adventure is only going to get better from here.

Cue the Muppets!

– Joe

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Filed Under: blogging, irrelevant stories, Meandering Tagged With: Alexa Internet, Blog, Financial plan, free financial advice, free financial advisor, Yakezie

Facebook and Zynga IPOs – Should You Buy?

December 13, 2011 by The Other Guy 19 Comments

We’ve all felt the magnetic pull of an IPO. The roaring 90’s come back to us. Why am I a blogger? I could invest in an IPO and be knee-deep in a Carribean island swimming pool holding a margarita the size of my face. Then again, I wouldn’t hold the margarita. I’d hire someone else to hold it.

So…the upcoming Facebook and Zynga IPOs – Should You Get In or Stay Out?

IPOs (initial public offering) seem to have lost a little of their luster over the past decade or so, but nevertheless everyone still turns their heads when a “big name” walks by and announces an IPO. Earlier this year it was the Groupon IPO, last year it was the “new” General Motors.

When a company announces their IPO, many people want “in” – it’s easy to see why: who among us hasn’t asked (at least to themselves, if not aloud) I wonder what would’ve happened if…

• I would’ve bought Microsoft in the 1980s;
• I would’ve bought Apple when Steve Jobs came back on board;
• I would’ve bought Google at $85/share…

As a financial advisor, my goal is to make sure my clients don’t “should” all over themselves.

(OK sidebar: If you didn’t laugh at that last sentence, you really need to read it out loud. Go ahead…get it? “Should” on one’s self? I can’t believe my comedy career never took off…okay….back to our regularly scheduled programming)

It tempts you because it seems like easy money. Who doesn’t like to live in fantasy land for a few minutes each day? My fantasy investment purchase? Greek debt insurance 2 years ago. That’s some serious jenga. But I digress.

So, here’s the deal with IPOs and why they’re not your best option:

1. Unless you have an “in” (think: your brother works for Facebook) you’re not gonna get any IPO shares

This means that if you try to buy into the Facebook IPO the day it opens, you won’t receive the IPO price (which is what everyone will talk about on CNBC). You’ll purchase your shares at a different–and often much higher–cost.

2. They don’t usually make money – at least not right away:

Image representing Zynga as depicted in CrunchBase

Image via CrunchBase

Like visions of gold, we conveniently remember IPO “winners” like Google or Amazon. We block out the long, tired stack of losers. Remember Pets.com? How about Vonage…they aren’t dead, but that IPO was a mess. eToys? Amazon.com, a mammoth stock by today’s standards, IPO’d in mid-1997…and didn’t make any percentage gains for several months. Google’s IPO occurred in 2004. The stock experienced a big spike, and then lay flat for 6 months. Often, IPOs don’t pay off for years, even when they’re winners like Google or Amazon.

3. The people who make the real money? The CEO, executive team and investment bankers. This is a big cha ching! event for them.

The Blackstone Group, a private equity and asset management firm, announced in 2007 announced they were going public. The issue drew so much attention that no one really paid any attention to the prospectus.

Why does it matter?

Well, it turns out that The Blackstone Group IPO launch only included “part” of their business (not that part that made money, mind you). After all the shares were gobbled up and the CEO and investment bankers off-loaded their shares (the CEO made $2.6 Billion–lovin’ the capital “B”), any gullible shareholders were stuck with a 42% loss in the first 12 months.  Here’s a great book discussing the lengths at which dirty CEO’s will go to cover their fraud.

Here’s our thoughts:

If you want to own a “cool new shiny Zynga IPO”, but don’t want to do the homework involved with reading the prospectus or making friends with an employee to get the “insider” price, buy a mutual fund in that same space. If it’s as awesome as you think, the fund manager will buy some (probably at the actual Zynga IPO price) and you’ll own some by proxy. If it’s a sham, the fund manager, who has a thousand times more resources than you, will probably pass – allowing you the easy way to decide whether to pass as well.

Plus, really, do you think it’s a good idea to put every dollar you own in Zynga shares–even if you could? What’s the best that could happen? Your money could double? Triple?

Sure. But what’s the risk?

We’re curious about your opinion. What do you think about the Facebook or Zynga IPO? Are you buying the hype?

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Filed Under: investing news, investment types, Meandering, successful investing Tagged With: Blackstone Group, Facebook, free financial advice, free financial advisor, General Motors, Initial public offering, IPO, Zynga

Tennessee Family Expected Insurance For Nothing – Boner of the Week!

December 12, 2011 by Average Joe 8 Comments

The Boner of the Week! is awarded every Monday to the most outrageous event, quote or story I read about this week.

Usually I discuss outlandish or erroneous quotes in the Boner of the Week! segment. This time, let’s tackle an event.

home after fire According to this story, a Tennessee family living in a rural area without fire protection didn’t pay a $75 annual fee to a nearby city to receive services. When their home went up in flames, firefighters stood by and watched the couple’s home burn to the ground.

At first glance, this appears to be a fire department and government politics problem. “On further review,” to quote the highbrow program Monday Night Football, I believe the Boner of Week! occurred when the family opted not to pay–what now appears to have been—a pretty important ‘insurance” bill before their house fire occurred.

Here’s my rationale:

1) They don’t live inside the city in question and.

2) Homeowners inside the city boundaries pay taxes for fire protection. Those outside are asked to pay a small fee to receive house fire support.

3) The family opted not to pay the fee, in essence declining the city’s coverage plan.

Don’t think I’m heartless. We’re experiencing a similar situation personally. Nearly ten years ago my in-laws met with me to discuss long term care insurance. My father in law, a smart man who’s always been a good friend, was vehemently opposed to it.

He said, “I’m not paying for that overpriced insurance. It’s a rip-off.”

Yesterday wife returned from Detroit, where she was helping my mother in law decide on options for home health care, because he’s suffered a major stroke. My mother in law is meeting with elder law attorneys, looking for ways to cut down on costs while keeping his quality of life high.

There aren’t many options now, because they made a critical decision back then to decline coverage.

It’s fair to assume that my in-laws will now spend about $70,000 per year (or more) of their own money on his care. Just like this family declined fire protection, had they purchased a long term care policy ten years ago, the break-even point on buying “that overpriced insurance” would have been only several months into the nursing home stay.

They chose to self insure. Now they’re faced with the consequences.

So is the Tennessee family that decided to opt out of fire “insurance.” They had a house fire and no fire protection coverage.

Maybe there are larger societal implications here. Maybe not. Maybe it’s that we live in a time when everyone seems to want someone else to take care of us. I believe this event is simply another wake up call: nobody cares about your situation more than YOU. Take care of yourself. Make your choice and live with the consequences.

What steps should you take to prevent making poor insurance coverage decisions?

1) Examine the probability of an event, such as a long term care situation or house fire.

2) Evaluate the cost to cover the probability

3) Decide whether it should be insured, or if you can handle it yourself.

In this case, seventy-five bucks might have saved a ton of personal property from this house fire. Often people will forego insurance because they don’t have the funds to pay the premium. Insurance is created specifically for times when funds are short. If there’s enough money to cover the unlikely need for fire protection and you follow some fire prevention safety tips, maybe it makes sense to avoid the fee.

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Filed Under: Insurance, Meandering, risk management, smack down! Tagged With: Boner of Week, free financial advice, free financial advisor, Insurance, Tennessee fire, Tennessee house burns

Exchange Traded Fund: A Low Cost Tool to Reach Your Goals

November 15, 2011 by Average Joe 7 Comments

If you’ve been living under a rock and haven’t heard of exchange traded funds (ETFs), today’s lesson is for you (though I still can’t figure out how you managed to get a wi-fi signal under there). An exchange traded fund is:

– often referred to as a “basket” of investments. This means a single ETF includes a collection of investments, so to some degree, you’re already diversified.

– investments that share a similar quality, such as all large companies, all oil companies, or all value-oriented firms. Sometimes they’re really quirky: all water companies, for example.

– usually aligned with an index, which is an unmanaged benchmark set of investments that people use to gauge the economy or success of their own investments. Some popular indexes are the Dow Jones Industrial Average, the S&P 500 and the NASDAQ 100. Some unpopular indexes are the Joe’s Favorite Boardgame Index and Best Doughnuts Ever Index, though I tried diligently to gain support for both products.

– unmanaged OR managed on “autopilot” based on predetermined criteria, not based on the whims of a manager.

According to Clark Howard, exchange traded funds are the fastest growing investment type, and with good reason. Although they compare favorably with mutual funds, they’re more attractive in many portfolios for a few reasons:

– Lower fees. Some investors believe that lower fees equal better results. I’m not that guy. But I do think that if I’m going to get middling results, why not pay less money for it? The average mutual fund fee is around 1.4 percent, while the average ETF fee is only 0.32. That’s a HUGE difference in fees. Think it isn’t a big deal? Check out this:

Story Problem!

Sally just sold her illegal street-rod and wants to invest the $10,000 profit. Over one year, an exchange traded fund will add an additional $108 more to her account than that average mutual fund her friend Jimmy uses. That $108 cost savings, invested for 30 years at 7 percent nets Sally an extra $11,738.01 for free, which she plans to invest in new headers and purple undercarriage lighting when she’s 65 years old. ….stuff Jimmy won’t be able to afford. HAHAHAHA

– Many investment options. A few years ago there were limited choices. Now if you can dream it, someone has probably created an ETF to emulate that investment idea.

– Downside protection. As a side benefit, exchange traded funds trade like a stock, meaning that you can use protection measures such as stop losses on an ETF. Stop losses can’t be used with mutual funds, because they only trade once daily.

Exchange traded funds aren’t the end-all, be-all. There are downsides:

– You’ll pay trading costs when you buy and sell exchange traded funds. This will take some of the $822 back out of your pocket.

– You won’t beat the index you’re competing against. Because your investment is tied to the performance of the applicable index, your returns will most often be slightly lower than that index (because of fees).

– In fact, your results will be pretty ordinary. The only way to beat the index is to invest in the hottest investments only. By capturing the returns of the entire index, you’re getting the best and worst picks of the crowd.

There are other downsides, but they’re more technical (such as dividends and volatility due to stop-losses). For the beginner, this is what you should know.

When is an exchange traded fund in order?

Just like you don’t bring your own hot dogs to a wedding reception (lesson learned), there is a time and place for exchange traded funds. Here’s where they really shine:

– ETFs are a great “hull” of a portfolio. Think of a ship’s hull. It holds the rest of the ship above water and cuts a straight path. Any position that you need in the portfolio to mimic market conditions AND you aren’t going to trade often is perfect for an ETF for two reasons: 1) trading fees won’t kick your butt (you don’t trade in and out of the “hull” of your ship) and 2) you’ll get the same diversification as a mutual fund at a lower cost.

– You want market-like results but fear volatility. I love psychology. Everyone wants two things from their portfolio (what’s with the two things today?): 1) Big returns and 2) no risk. Am I right? Of course I am. The market doesn’t give you Burger King (have it your way), but you can limit volatility. As I explained earlier, exchange traded funds trade all day long, while mutual funds only trade once per day. Why’s this a big deal? Mutual fund investors can’t limit volatility during a trading session. ETF investors can use instruments like stop losses to curb losses. Sure, you’ll pay trading fees, but if the market tanks, your nest egg will only have dropped to your stop loss point.

– You want to take a risk, but don’t want to bet on a single company. Because some ETFs emulate sectors of the market, you can gain exposure to precious metals, commodities and other risky asset classes without betting the farm on a single stock, bond or commodity. Sure, you can do this with mutual funds also, but with the ability to buy and sell all day long (as described above), ETF investors enjoy a greater degree of flexibility.

– Wrap and low cost trading accounts. If you have an account where you don’t pay for individual trades or pay a minimal amount, trading fees on ETFs are no longer a bridle on your results.

So, minions, that’s our Exchange Traded Fund lesson for the day.  Here’s my question to you: If you use exchange traded funds in your portfolio, how do you deploy them? Why do you like them? If you don’t use ETFs, it may be a marvelous idea to read the comments and see if some of our brilliant readers have additional ideas. Enjoy!

Filed Under: investment types, low cost investing, risk management, successful investing Tagged With: etf downsides, etf upsides, etfs, exchange traded fund strategies, free financial advice, free financial advisor, how to use etfs, how to use exchange traded funds, low fee investments, stock protection strategy, stop loss

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