Oh, how I love the financial press. On the MSN homepage this morning in the money section, one of the headlines read “$250,000 a year and still strapped”. Click in the link, and it brings to this article: “The rich don’t save either”. Another article on how Americans to don’t save as much as they used to or as much as they should, focus being on how this extends to the rich. The biggest complaint? They need to pay everyday bills too. Give me a break.
I wish the article went into some detail on what some of those everyday bills were. But let me guess. They drive more expensive cars than they probably should. They subscribe to all the premium cable services. They pay a crap-load of banking service charges. They carry balances on their credit cards. They use their home equity loans to finance things other than their homes. They take premium vacations. They shop at upscale grocery and clothing stores. They outsource more than they should. They want to give their kids more than they had. Anyway, I can go on and on about this. I know people like this. In fact, I’m related to a few of them.
It is amazing what people consider to be “everyday bills” and don’t take accountability for making poor financial choices that is affecting their current and future standard of living. One relative of mine, who shall remain nameless, is constantly telling two types of stories: one on how they shop and the things they buy (which really isn’t all the extravagant, but just constant), and the other about being constant refinancing, being audited, owing back taxes, paying high interest rates, not being able to get ahead. I used to participate in the conversation, but now I just ignore it. These people are immature, don’t see the bigger picture, and have a sense of entitlement which is more like an anchor than anything else. It used to make me mad, but realizing that I can’t do anything about, I just focus on my own and try to make the best choices possible. People like this think that more money will solve their problems, but if they can’t make it work on $250k a year, they won’t be able to do it at $300k or $400k. More money isn’t the issue.
Anyway, back to the article. I’m not sure what the intent is from the writer’s perspective. To make lower class people feel better about their problems? To inspire wealthy people to save more? To grab more clicks and drive advertising revenue because the headline is somewhat preposterous? Given the lack of detail, I’m going to go for the latter.
Thursday, May 24, 2007
Wednesday, May 23, 2007
Memorial Day Cometh - Time to Selleth...
Memorial Day is upon us. The sole Survivor has been selected. Jack Bauer has saved the world yet again on 24. The winning couple has had their last dance on Dancing with the Stars. The top singer was selected on American Idol. The plot has thickened on Lost. And while the networks have been bombarding us with a wide assortment of new pseudo-reality shows for the summer (more dancing, car racing, amateur film-makers, and all kinds of trashy boyfriend/girlfriend choosing, wife swapping, and other mindless pabulum), the looming question has still not been answered. Will the market pull back?
Damn right it will. Besides the investor’s cliché of “sell in May and go away”, all the other signs are there. The housing market continues to drop in most parts of the country. Oil prices are still high with no relief in sight. Government spending is out of control. The sub-prime mess. Greenspan stating that a recession will most likely happen. The US dollar getting creamed. The stock marketing reaching all time highs. The longest bull run in. Investing pundits raising the warning flags to get out now. Of course, people like Doug Fabian are always raising the flag, but this time he’s on the money.
So what I’m going to do? I’m taking some chips off of the table with my equities. Not worth getting out of my covered-call positions, but in my other holdings, I’m going to do one of two things. First, where I’m overexposed (and most people are whether they admit it or not), I’m selling some shares and raising some cash for when the pullback comes. Second, on some of my winners, I’m going to let them keep on running, but put stop losses on them so I don’t get walloped. I wish I could do the same with the mutual funds in my 401k plan, but alas, the rules are screwed up and don’t allow me to do that.
The hardest part about selling in May and going away is having the discipline to do so. At every market pull-back, I’ve always wished that I sold when I was seriously thinking about it. But then I wavered because I was either greedy, or let the emotions get the best of me. Do I really want to sell my Starbucks stock? Even though I don’t drink coffee, I like the company. And reasoning like that has got me in trouble. And days like today, where the market is going up and I feel good about it, I know in my head that the market is going to pull back and I’ll kick myself if I didn’t pull the trigger.
So here I go. I’m pulling some money out, putting some stop losses in place, and getting ready for Memorial Day, the gateway to the summer season. I’ll still be in the market and doing some of my option trading, but I’m protecting m nest egg so I don’t have to worry about it over the summer. Memorial Day for me has changed over the years, and the meaning of it today is to remember the fundamentals and protect my money today so that I can have a better future tomorrow.
Damn right it will. Besides the investor’s cliché of “sell in May and go away”, all the other signs are there. The housing market continues to drop in most parts of the country. Oil prices are still high with no relief in sight. Government spending is out of control. The sub-prime mess. Greenspan stating that a recession will most likely happen. The US dollar getting creamed. The stock marketing reaching all time highs. The longest bull run in. Investing pundits raising the warning flags to get out now. Of course, people like Doug Fabian are always raising the flag, but this time he’s on the money.
So what I’m going to do? I’m taking some chips off of the table with my equities. Not worth getting out of my covered-call positions, but in my other holdings, I’m going to do one of two things. First, where I’m overexposed (and most people are whether they admit it or not), I’m selling some shares and raising some cash for when the pullback comes. Second, on some of my winners, I’m going to let them keep on running, but put stop losses on them so I don’t get walloped. I wish I could do the same with the mutual funds in my 401k plan, but alas, the rules are screwed up and don’t allow me to do that.
The hardest part about selling in May and going away is having the discipline to do so. At every market pull-back, I’ve always wished that I sold when I was seriously thinking about it. But then I wavered because I was either greedy, or let the emotions get the best of me. Do I really want to sell my Starbucks stock? Even though I don’t drink coffee, I like the company. And reasoning like that has got me in trouble. And days like today, where the market is going up and I feel good about it, I know in my head that the market is going to pull back and I’ll kick myself if I didn’t pull the trigger.
So here I go. I’m pulling some money out, putting some stop losses in place, and getting ready for Memorial Day, the gateway to the summer season. I’ll still be in the market and doing some of my option trading, but I’m protecting m nest egg so I don’t have to worry about it over the summer. Memorial Day for me has changed over the years, and the meaning of it today is to remember the fundamentals and protect my money today so that I can have a better future tomorrow.
Sunday, May 20, 2007
5 Million
When I was a kid, being a millionaire was glamorous and fantastic, something that was aspirational. Coming from an immigrant background, it seemed so out of reach. When I reached that milestone in terms of total net worth last year, it was not as big of a deal as I thought it would be. No alarms went off. I didn't quit my job. I didn't buy a sportscar. In fact, I didn't spend a dime. I shared a bottle of wine with my wife, but not because we reached the million mark. We were just going to have a bottle of wine anyway. It just coincided with me updating our spredsheet and the total showed a seven figure number.
After doing a lot of thinking and playing with numbers, I figured our target number of assets that allow us to independently wealthy and retire would be at least 3 to 5 times that once magical milestone. Turns out I'm in the same range as others who write about this. In the June 2007 issue of Smart Money magazine, the cover story is "How to Make $5 Million", which of course, grabbed my attention. But like most cover stories of the personal financial press, the title overstates the actual content. Sure, the article has some great stories about how some people made their millions and made the $5 million mark, but the article lacks any practical advice on how to get their. The path to the millions is achievable by starting your own company, which is nothing new. Robert Kiyosaki has been writing about the for years. In fact, this article kind of reminded me of his writings. Inspirational - yes. Practical - not really. The only thing that impressed me in the article was that it was not overtly pushing the type of investment products that actively advertise in the magazine, like mutual funds and equity stocks. Normally that is what you see in a lot of the articles in the mag.
But my point here is that $5 million is the new millionaire. $1 million just doesn't do it anymore. Especially if a big chunk of that is tied up in your home equity and you can't do anything with it other than pull it out through a HELOC. So the long of the short of it is that $1 million ain't enough, unless you have it all income generating assets. But even then, at 5%, that's only 50k per year. That might be okay for today, but not in the future.
After doing a lot of thinking and playing with numbers, I figured our target number of assets that allow us to independently wealthy and retire would be at least 3 to 5 times that once magical milestone. Turns out I'm in the same range as others who write about this. In the June 2007 issue of Smart Money magazine, the cover story is "How to Make $5 Million", which of course, grabbed my attention. But like most cover stories of the personal financial press, the title overstates the actual content. Sure, the article has some great stories about how some people made their millions and made the $5 million mark, but the article lacks any practical advice on how to get their. The path to the millions is achievable by starting your own company, which is nothing new. Robert Kiyosaki has been writing about the for years. In fact, this article kind of reminded me of his writings. Inspirational - yes. Practical - not really. The only thing that impressed me in the article was that it was not overtly pushing the type of investment products that actively advertise in the magazine, like mutual funds and equity stocks. Normally that is what you see in a lot of the articles in the mag.
But my point here is that $5 million is the new millionaire. $1 million just doesn't do it anymore. Especially if a big chunk of that is tied up in your home equity and you can't do anything with it other than pull it out through a HELOC. So the long of the short of it is that $1 million ain't enough, unless you have it all income generating assets. But even then, at 5%, that's only 50k per year. That might be okay for today, but not in the future.
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