My Money Shrugged Turns 1 Year Today!

My Money Shrugged turns 1 today! I want to thank everyone who has checked out the site and who continues to come back daily, weekly or monthly! It is the viewers of this site that keep me posting things I find and other thoughts and ideas I have.

This site started out as a personal finance blog and has evolved into a personal finance/political blog. I know I probably lost a lot of viewers when I started posting about government intervention...*shrugged*. When I started looking at my finances and how I wanted to always be a saver and be prepared for the future, I realized there are so many outside factors that influence my capital. I also dove deeper into economics and now see how government intervention can strongly decrease not only mine but others people's saving through taxation, inflation, and a loss of our freedoms.

I only other thing I would say, is that I would love to start more of a community here, if you feel like commenting on anything I post please do and we can start a conversation so we can learn and exchange ideas and solution that could help with our personal finances and most importantly our freedom.

Thanks again for everyone who reads and send out my links to friends/family/twitter/etc...

“Educate and inform the whole mass of the people... They are the only sure reliance for the preservation of our liberty.” - Thomas Jefferson

Truth Behind Common Financial Advice and Conventional Wisdom

This is a guest post by Mr Credit Card from www.askmrcreditcard.com. Mr Credit Card normally writes about credit card reviews, debt reduction topics and his site obviously has got tons of credit card offers. He has also put together a list of the best credit card offers and deals. Please check out his blog and subscribe to his rss feed. Today, Mr Credit Card is going to branch out and write about a topic that we should all be aware of. So here is his post

If you read the mainstream press and even most personal finance blogs, you will have come across many standard common advice. However, if you look deeper into these "standard advice or thinking", you will find that most of them are just not true or that it comes with a few caveats. Today, I am going to highlight some of these and hope that you will be more discerning whenever the mainstream press gives any so called "standard" advice.

The stock market always goes up in the long run - This common statement derived from studies in the US only from 1926 till present day. Some studies went further back to the late 1800s and came to the same conclusion. Based on this "empirical evidence", the common advice now had been to telling folks that in the 'long run', stocks are always the place to be. Problem with this analysis is that there are many assumptions that have been left out.

The first is that this study holds true only in the US because the United States. In countries like Russia (where communism happened in 1917, or parts of Europe, where there were 2 major world wars in the last century, or even in South America), this conclusion is simply nonsense. Germany went through hyperinflation in the 1930s and a change in currency. One that was pegged to gold and one that was not. South American countries went from being the richest nations in the world to one with massive debt problems in the 80s and 90s. If you were living in those countries, this 1926 US stock market analysis is meaningless when your country faces crisis of epic proportions.

Truth - It only went up in the US (and perhaps Britain) from the time frame of analysis. But bear in mind that the US has not been conquered in war in the last century. We have not had massive currency devaluations or flight of capital. Being careful of the definition of long run. There have been 20 year stretches where the US stock markets did nothing. So if you do not have a 20 year horizon or longer, be very wary about putting the bulk of your money in stocks.

US treasury bills and bonds are the safest investments - The US government treasury bills is considered the safest investments because the US government has never defaulted on its debt obligations. And hence, its historical yield is used in calculations. Because of such assumptions, academics have used the yields on treasury bills as the "risk free asset" (for those of you who study CAPM and stuff). However, there are some flaws to this assumptions.

But in the 1930s, President Roosevelt devalued the dollar by more than half when the dollar was re-pegged to Gold. In the 1970s, President Nixon took the dollar off the gold standard after the French President Charles DeGaulle wanted to exchange the French US Dollar Holdings for gold! In the 1950s, interest rates on long bonds was actually capped at 2+%!

Truth - While in many instances, US T-bills can be considered the safest assets, this only holds true if the US currency does not devalue massively. Today, we are seeing signs that countries like China are wary about their US Dollar reserves and also do not like the fact that the US Dollar's role as the international currency of choice means that we can get away with deficit spending. There is no guarantee that the dollar may lose it's reserve currency stature in future and if that happens, the US dollar will have depreciated a long way. Moral of the story is : have some of your other savings in other currencies and study how to keep your money safe. Perhaps, some gold investments would be good for you?

Reaching a retirement savings of a million dollars is a desirable goal - Another one of those myths that floats around the mainstream media. What puzzles me is that nobody questions this number at all. If a great retirement is your goal, I think that you will find that this number is really not enough. Why?

Using monte carlo analysis, it has determined that by withdrawing up to 4% of your retirement nest egg, you have a more than 85% chance of having your portfolio intact after 30 years. 4% of $1mm is $40,000 a year. And this is after tax money. Firstly, I doubt anyone can live with that amount in a high cost city like New York. Secondly, after factoring in health insurance and all other cost, there ain't much left!

What the mainstream media fail to tell folks is that planning for a career in "retirement" is more important than just "saving for retirement" itself. Afterall, savings can evaporate (ask anyone what happened to their 401ks in 2008). Your countries currency can become worthless (ask any middle Argentinian, or Russian). In the 30s, Germany went through hyperinflation.

Truth - With inflationary monetary policy as part of the western developed world for the last century, the whole million dollar is enough notion will face greater scrutiny sooner or later. You'll probably need much more to enjoy the same standard of living as you have now. If you are earning $100,000 a year today, based on 4% withdrawal rate, you'll need $4 million in retirement savings to have a good chance of achieving the same standard of living.

Small Deficits are OK - The US government has no problems perpetually running budget deficits (saying 3% deficit is OK!). All I can say is that if any household runs a budget deficit for too long, they will sooner or later have to file for bankruptcy. Well, I guess developed countries government like the US can run budget deficits for a longer time than most ordinary households. But sooner or later one's past sins will always catch up.

Deficit spending has a nasty habit of being justified by something that is "really needed". We need to provide health care (very expensive) for the elderly. We need massive military spending. We are fighting two wars. We need to spend money on various programs.

But this mentality spills over to our individual's personal financial life as well. Many folks will say it is "OK" to put the plumbing repairs on the credit card, because we'll "pay it off soon"! Problem is that just like the federal government, most folks do not pay it off. Once in a while, certain "freebies" come along that make our debt load easier. In the case of the federal government, easy monetary policy allows US government debt to be issued at relatively low interest rates. The easy monetary policy has trickled down into the consumer world via promotions like 0% financing for cars, 0% balance transfer credit cards, or even low interest credit cards. For quite long periods of time, these easy monetary policies enabled the federal government and US consumers to "fund deficit spending".

Truth - Debt should be shunned at all cost. What starts as a small amount eventually becomes a habit that becomes very hard to kick.

Global Savings Glut by Emerging Countries Responsible for Global Imbalance - Here's another common economist rant. China, and the Asian emerging economies are savers (which everyone actually acknowledges is good). But they save too much! Because global trade is conducted in US Dollars, countries with trade surpluses have excess savings in US Dollars. And the dollars has to be invested somewhere. The most natural home is US treasuries (ie US government debt). Hence, even if the US is running a persistent budget deficit, savers abroad have no where else but to invest with us. The result for all that is that interest rates and mortgage rates remained low even though our debt picture shouldn't have allowed it.

So what do we tell China and the rest of the world's savers? Don't save so much. Introduce social welfare and health care so people do not have to save so much and they can "spend"! This is one of the worst advice I've heard. We have trouble controlling spending in medicare and social security and now we're telling savers to follow our vices!.

Truth - Truth is the problem is not with savings. It is with the fact that the world conducts it's commerce mainly in US dollars. Savings is the only way to wealth. Savings (just like an emergency fund) gives you cushion. China, for example, could pump billions into their economy without having to borrow from anyone! The good old US however authorized over $700 billion in spending (which by the way they printed!) and they actually have to borrow it from the financial markets. And that is the big problem with having debt. You have to keep issuing IOUs! China's billions was simply gotten by converting their US dollars reserves into Yuan! In personal finance, the same principals apply. When you have debt, whether it is a mortgage, a home equity line of credit or credit card debt, you are constantly on the treadmill trying to find a better card or loan with a better rate. Contrast that to someone who, for example, pays his balance in full. That person can actually use a cash back credit card or gas credit cards to earn cash rebates. Unlike the person having to pay down his or her balance, the person paying in full actually makes money!

Term Life Insurance is Always Better Than Whole Life - Here is another phrase that has been hyped up by the Suze Ormans of the world and literally the whole finance bloggers world. Everyone hates whole life. What nobody has ever properly explained is the cons of term life. So let's look at a few here:

Term life insurance ends after a term - proponents would claim that

1. You can save the money on whole life and invest the difference
2. You do not need insurance after 20 or 30 years cos you have saved enough
3. Term is more cost effective

Problem is nobody tells the downside. The first downside is that

1. The annual premium for term life goes up every year!
2. To maintain the same insurance, you have to keep paying premiums every year. When you are retired and have no "work income" but only portfolio income, monthly payments are a really pain in the B***. For whole life, once you have paid up, it really means you have paid up!
3. By the time you are 50 or 60, you may not have saved enough and your beneficiaries still need money from insurance if you pass away!
4. You have a disabled child and whole life or permanent insurance is the only way to fund it (after all, their needs are permanent!)

Truth - Term life may or may not be more suitable for you. It really depends on your particular situation.

I think I'll stop here. I hope this post makes you think harder and question common teachings and assumptions in the world of personal finance, or anything in fact.

Please leave a comment and tell Mr. Credit Card your thoughts.

Advice to New College Graduates

This is the second post dealing with advice for recent college graduates or graduates to be. You are going to be getting a lot of advice from different people, so you can take this advice with a grain of salt. I can only tell you advice from my point of view and I hope it asset you in making you a better person for it.

Let me give you a little background on my experiences after graduation. It was about a month before I graduated and I had no idea where I wanted to live and I did not have a job, so my options where completely open. A friend of mine had recently taken a job and his company was moving him out to Los Angeles. One night we were out and he asked if I wanted to move to LA, I took my chance and moved out there to start "The Real World".

During the last 9 years after graduating, I am still living my dream of doing what I studied and have been blessed enough to be successful at it. I can tell you it hasn't been easy, it took a lot of sleepless nights of perfecting my craft, along with stepping stones from the bottom. It has been a long road to get where I am now and there is still such a long road with a ton of obstacles to where I want to go.

Some stats from my "Real World"

Cities I have lived in- Two
Jobs - Six
Laid Off - Twice
Highest Credit Card Debt - 5k
Unemployed - Once for 6 months
Jobs I have loved - Two
Jobs I have hated - One
Freelance - Twice
Contacts - 153+ LinkedIn
Managers - 11
Corporate Buzzwords - To many to count

As You can see in 9 short years a lot can happen, I know some friend's stats that would blow mine out the water. The point in putting those numbers out there is to tell you keep a level head about all your situations. Jobs/managers/partners/collegues come and go and business's are constantly changing, plus you can add in circumstances that are beyond your control.

I moved out to LA and couldn't find a job for a few months. Once I finally found a job, 9/11 happened and all of a sudden there were no jobs to be found. It took a good three years after 9/11 for me to land a solid job I was proud of. During those three years I had a job not paying much that I hated. Instead of getting down (which I did) I started to network and choose working at night to perfect the skills I knew I was going to need if I wanted to make it. Every job situation I have ever had, led me to the success I am seeing today, even the one I hated.

Your career is going have hills and valleys just like life in general. You just dont want your life's hills and valley to be directly connected with your career, which is very hard to avoid. One of the hardest task is to keep a balanced head no matter what your earning capability is. Making minimum wage or making more money that you ever thought you could or would, you should always learn and love to live within your means. Living within your means, you will always be able to grow your wealth, this is important because you never know what may arise. If you start to save from the time you graduate, you will find out that you will be able to pursue so much more in the future. It might be going back to school, open a business, or if you lose a job you have an emergency fund so you can choose the next job position that is right for you, and not have to take a job because you need it. My mother has always said "it is always easier to get a job, when you have a job", and this is a very true statement. It also a very important statement because you can choose a job that you love rather than one you hate.

Find a career, not a job, a job is something that you hate on Monday's and look forward to Friday's. Constantly looking forward to Friday can only take you but so far. A career is something you love from the first day to the day that you retire, enjoying the failures and the successes that come with it. When you retire you can look back and rest because you have worked hard everyday to get to this point.

What are some of your stats from your career? Post them in the comment section so that other people can see what careers are made up of.

Governments hands in our 401(k)s?

After reading this article in the Wall Street Journal about major changes that are going to probably be coming down the road on 401k's has got me completely freaked out.  I also remember reading a article about this in Money mag on how our 401k's need to be revisited and revamped. I feel the government has its hand in to much of our personal lives as is, stay out of my retirement. I already have fears about some of the decisions being made in Washington that are going to come back hurt my pocket one day, but let's just stick to the subject. 

Some of the highlights from the article are:

"In another proposed change, President Obama's 2010 budget calls for the future establishment of a program in which all workers would be automatically enrolled in employers' retirement plans. Now, in most cases, they must opt in to participate. Also under the administration's plan, employers that don't offer a retirement plan would be required to enroll their employees in a direct-deposit individual retirement account. Employees would be able to opt out of either approach."

I could be wrong but don't we already have a plan like this, that is currently bankrupt, called social security? The only difference I see is the option to opt out? I think a easier solution would be to allow us to opt out of SS now. I would be up for opting out of SS, because I am 100% sure that I could take the 6.20% that I give every pay check and invest in something I would actually see one day. 

Goes on to say:

"The 401(k) has become the primary savings vehicle for 60% of workers but has been under scrutiny as workers lost $2 trillion in the market downturns, including traditional pension plans."

Look I agree that there should be some scrutiny behind a 401k. The individual needs to look at the plan and I don't think the government needs to have a hand in any part of my retirement or investments. They were not saying that when people were making money at 8-12% year? Everyone should have learned with Enron that you should be diversified and not have everything all in one company. I am willing to take a strong look at my 401k plan and determine personally, what I need, to make sure I have a nice egg for retirement. If someone decides not to participate in a 401k, they can just save or invest in other areas they seem fit. My grandfather never had a 401k, what he had was a saving account, and he saved enough money that he could retire and play golf everyday. 

I believe that this is what will happen if the government has their way

"Ed Ferrigno, of the Profit Sharing/401(k) Council of America, an industry group, said one fear is that more regulatory requirements will increase costs, and thus reduce services, for workers."

This is what happens when the government has there hands in the people's business. We don't need anyone to tell us what we should be doing with my hard earned money. What we need is for everyone to learn and understand that they need to save money for retirement. Whether they want to take the risk in the stock market or in other means of saving/investing is each individuals right as an American.

The one part of the article I like, talks about more tax incentives for workers and employers who participate in plans, but that should be the case now. Right now 401k's are deferring current income taxes, but the more incentives individuals and employers have, the more people would be willing to learn about the best options. If the government doesn't stop spending, the tax rate for my generation will be through the roof because of the deficit. They need to have more incentives like the Roth 401k which allows you to contribute with after-tax dollars and once you hit retirement age (59-1/2) you can begin to withdraw the money tax-free.

My whole fear in the government having a role in this matter, is that they don't have a very good track record with money, they seem to waste a lot. The government also seem to make decisions based on what crisis is going on, take this conversation for an example. For the most part they make changes that are the most popular one at the time or at these turning points. Our 401ks are individuals savings/retirement accounts and if the government has their hand in it, who is to say that they will not, if there is a national emergency, take that money from us and use it as they seem fit? That might be an extreme, but its to make a point...at the end of the day we don't need a nanny state. This seem again like the government is swooping in to bail us out? Please leave me out of this one as I am not counting on anything from the government when I retire, I can take care of myself.

I know this is probably a touchy subject but I really am very interested in hearing your thoughts on this. Is it a good thing, or are we playing with fire(retirement)?

Vacation here we come!

Today we are headed to California on vacation for a week. Keep checking back as I am trying to get a couple guest writers from people who have inspired me to work hard and to be smart with money. I wrote a couple of post last night so that I can be posting through next week.

In the meantime, here is 10 Reasons to be a Long-term Bull that I got in my last Edward Jones statement. Here is a link to the whole PDF.

1. The economy is bruised, but it’s not broken. Last year, the value of all goods and services produced in the United States (gross domestic product, or GDP) was $14 trillion. Americans earned $10 trillion in disposable income.

2. It’s not the Great Depression. Though many people like to compare today to the Great Depression, there hasn’t been a run on the banks. There are no widespread bread lines or soup kitchens.

3. Debt/deficits won’t crush the economy. Currently, the deficit is expected to be no higher than 15% – which is the highest since 1943. If you’re concerned that higher taxes may be imposed to pay for higher spending, consider investments that could help reduce future tax payments.

4. 50% drops historically have been an opportunity. 

5. The government continues to support the financial system. While support for banks is controversial (and expensive), it’s designed to prevent the widespread panic and bank runs that occurred during the Great Depression. The Fed will continue to do more to support the credit markets and the economy, entering the market directly when necessary to lower mortgage and other rates if necessary.

6. Stock valuation is compelling. By almost any traditional measure of value, stocks have already priced in a lot of the bad economic news.

7. Inflation is under control. The Fed is keeping a close eye on inflation. However, if inflation does increase from its current level near zero to 2% – 3%, that’s probably a better scenario than deflation, or falling prices, which is a much tougher situation from which to recover.

8. When you feel bad, it can be good. High levels of fear and anxiety, which is often seen after the market has done most of its damage.

9. Good performance often follows bad. There have been only three negative 10-year periods since 1926, but the 10 years ended Dec. 31, 2008, were the worst (-1.4% per year). However, historically, good years have often followed bad ones. In each of the 12 10-year periods following those 10-year periods when market returns were less than 6%, the returns have averaged about 13%.

10. You still have long-term goals you are trying to achieve. A $100 investment that has fallen to $60 has lost 40%, but that investment must now rise 66% to break even. This can be difficult to achieve if the money is no longer invested.

Have a great weekend and even better week!

401k vs Roth IRA - Round 2

So today I finally looked into what my best option was for either putting money into my company 401k or Roth IRA. I went and did some research on my companies HR site and found out that they are only matching up to 5% and not monthly but at the end of the year.

I'm not sure they will match until later but dont want to miss out if they decide to this year. I am currently putting in 8%, so this knock-down drag out fight still looks to be a draw. I dropped my contributions back to 5% and hopefully the company will match at the end of the year. In the meantime I will put the extra 3% in with my monthly contributions to my Roth. At the end of the day I still think this is the best decision and hopefully this will get me closer to my 2009 goal of maxing out my Roth. I also have my fingers crossed that the economy will turn around and will get my 5% matched come years end.

Does my adviser have my best interest in mind?

So my adviser calls me the other day and tells me that with my Roth IRA they are getting rid of the Capital World Growth & Income CI B Fund that I am currently contributing to. He then proceeds to ask me if I would like to replace it with the A Fund which is a front load of 5.57% or if I would like the C fund that has no upfront cost but a yearly fee of 0.75%. I asked him which he recommended. He advised me if I was going to keep in it long term to go with the front load, so I should put it in the A Fund...I took him at his word.

I started to think if it was the right decision and did some calculations. I am currently putting in 100.00 a month(setting aside another hundred/per month for investments) and with the front load of 5.75%, about $94.25 goes into the fund? I thought IM PAYING ALMOST 6% UP FRONT? The fund would have to make 6%+ for me to break even? To me that doesn’t make much sense? Especially now that I am losing 10-20% month. I will be checking these funds and I am not planning to keep for the long haul so the upfront load would be a bad investment.

I am currently looking into opening another Roth IRA with a no-load fund and no fee where I can invest and build a portfolio of low cost, diversified funds. I mean in the end I can do all this investing myself with a little research without the yearly fee to the advisor?

The showdown 401k vs Roth IRA?

Recently my company cut back on matching my 401k while the economy is upside down. I feel like I am at a bout (temporarily) with investing in my retirement…which one of these is the strongest investment at this current time.

Currently I am putting around 8% of my pay check into my 401k which is actually not losing money at the moment. It will come out to about $6160.08 at the end of the year. This money is also pre-taxed and by making pre-tax contributions, I am lowering my current taxable income.

With my Roth IRA which is after tax contributions, I am currently putting away $200.00/month = $2400.00/year with the limit on the Roth capped at $5000.00.

I am trying to figure out which should win this round? Maybe cut back 2% on my 401k which would put an additional $1540.00 in my Roth for a total of $3940.00/year and making my 401k total to $4620.00/year.

I know once my company starts matching again that I will bump it back up. During the meantime do I add more to my Roth or keep everything where it's at? I will keep you posted I need to do some more research. Please leave feedback!