Wise Money Decisions

Gene Epstein of Barron’s explains that older workers are more likely to stay in the work force longer, resulting in higher revenues for social security than current projections. 

He calculates that revenues will exceed expenses in the social security trust fund beginning in 2018, rather than the federal government’s current forecase of 2016.

It’s a pretty interesting idea, and seems to have some merit.  Older workers working longer is a long-term trend over the last few decades.   That trend should only be strengthened by older workers with 401(k)’s and other stock-based accounts that have lost significant value over the last 18 months.

“Rules-of-thumb are for people who want to decide things without thinking about them.”– The late Lynn Hopewell, former editor of The Journal of Financial Planning

As you might have guessed, PFAIRQWOBRAR stands for “personal finance and investing related quotes worthy of being repeated and remembered.”

Some are funny.  Some are insightful.  A few are both.

You can access all PFAIRQWOBRAR quotes via the Quick Link at your top left.

Recommended reading from Jeremy Siegel.  Very interesting long-term data on stocks vs. bonds.

The latest going-ons in “big law” are starting to draw interest from the mainstream press. 

This week Yahoo Finance put up an article about big firms asking their incoming first-year associates to defer their start date, in some cases up to a year.  Many firms are paying a partial salary or stipend to retain their associates through the deferment.  Reportedly some stipends are as high as $80,000, which would be half the first-year salary at most big firms.

In many cases the associates do not have a choice.  But suppose you did.  Which would you rather, $160,000 to work as a “big law” junior associate, or $80,000 to do your own thing for a year? 

As a former big law associate, let me assure you there is only one right answer.  Defer for a year, and then see if you can get them to defer you a few more years.  Thirty would be ideal. 

If you are interested in learning more about the benefits of index ETF’s vs. mutual funds (including both active and indexed mutual funds), you will appreciate this 6-and-a-half minute presentation from Vanguard. 

If you are already well-versed in the benefits of indexed ETF’s, the presentation doesn’t cover any new ground.  

Even so, if you like numbers as much as I do you will find some fascinating data in the presentation.

I got a laugh out of the warning at the bottom of each slide:

“FOR FINANCIAL ADVISORS ONLY.  NOT FOR PUBLIC DISTRIBUTION.” 

Clearly information this powerful should not be handled by the public at large.

I’ve stayed very busy the last several weeks.  I will let you know why soon.

In the meantime check out the post at My Money Blog about his cash transfer hub at Etrade.  I’ve been looking for something like this.  I’m sold.

P.S. I filed several tax returns a few weeks ago.  None were my personal return.  I got an extension.  History repeats itself.

In discussing the recent Jon Stewart/Jim Cramer going-ons, MyMoneyBlog channels my thoughts about the financial industry:

Even Stewart admits Cramer isn’t the real problem, which is that the purpose of 99% of the financial industry is not to make you rich. It’s too extract money from you, while you think they might make you rich. From brokers to hedge funds to bloated 401(k) plans….

CNBC is financial porn. It’s air-brushed to look better than reality, and is scripted for your entertainment. Do people really want to watch responsible reporting on CNBC? Invest in index funds. Don’t trade too much. Don’t look at the Dow ticker every five minutes. I’m not so sure that would sell.  

Well said Jonathan.

Jim O’Shaughnessy of O’Shaughnessy Asset Management.

A few excerpts:

The 40 years ending February 2009 were the second worst 40-year period for equities since 1900, with only the 40 years ending December 1941 doing worse! …

We are talking about an event so rare, that most of us alive today will never see such an opportunity again.

Many will say that I got bullish too early, writing that stocks were a screaming buy in Fall 2008 and that they have only declined since then. That’s true. Yet major stock market bottoms are seldom defined by a single point in time. Stocks began presenting great opportunities in the fall of 2008, and those opportunities have improved even more since then. Disciplined long-term investors learn to take advantage of these broad market valleys and continue putting money to work as long as the huge opportunity remains.  

Now is the time for all investors to do the same — for young investors, this is perhaps a once in a lifetime gift, and they should do their best to open and make maximum contributions to their 401(k)s and other tax advantaged plans. 

For middle-aged investors like myself, I recommend increasing the equity allocation of your portfolio to 70 percent and consistently moving money into stocks over the coming months.

And for investors who are already retired, now is the time to increase your allocation to stocks, particularly if you are significantly overweight bonds. If you are 70 years old, the actuarial tables say you will live another 13 ½ years — and a robust portfolio will help you enjoy your remaining years more fully.  

I believe that this time will be no different and that investors who take advantage of currently depressed stock prices will be delighted with the outcome five to ten years from now. 

Nothing we don’t already know, but it’s good to get a reminder that stocks have followed historical long-term trends that tend to overwhelm the shorter-term trends, such as that of the last 18 months.  

And he has some very interesting charts about 40 year returns to back up his main point.   It’s worth clicking through just to see the charts.
 

The market is having a tough day.  S&P500 is down nearly 4%.

In other news, the headline writers for Yahoo Finance are having a tough day.  The current headline:

Stocks Extend Slide on Lack of Positive News

I love the creativity.

“Why the Credit Bureaus Can’t Get It Right” from smartmoney.com