Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.
— John Allen Paulos.
Today I’m kicking off a new series on index investing. I’m going to run the risk of offending the hive-mind with this series, so let me preface it with a couple of reminders: I am not a financial professional. I do not have a degree in economics. I offer only the opinions of a guy who spends a lot of time thinking about these sorts of things. There are many extremely smart people with extremely impressive degrees who disagree with me, and I highly recommend reading what they have to say.
Now that that’s settled, I’ll just come right out and say it — I have grave doubts about the future of conventional index investing. My reasons for this are many, and each could sustain a lengthy discussion and debate. The following series of posts will discuss a few of them in broad strokes. [Click to continue...]
Being broke is a temporary situation. Being poor is a state of mind.
— Mike Todd
Another entry in our financial Hall of Horrors — Check Cashing! One of the sure hallmarks of a scary neighborhood — along with bars on residential windows, the constant sound of sirens, and bulletproof windows at gas station booths — are big, brightly colored signs, saying “Checks Cashed! No ID Required!”
Check Cashing storefronts proliferate like rats in blighted neighborhoods in order to feed off the poor. It’s hard to imagine a more cynical, exploitative business. [Click to continue...]
The greatest enemy of a good plan is the dream of a perfect plan.
— Prussian General Carl von Clausewitz
Today I am pleased to present our very first guest post! Hailing from the Land Down Under, the Mortgage Mutilator writes an entertaining and informative blog focused on paying down mortgage debt as quickly as possible. He kindly offered to give me a one-day reprieve from my 30-day posting challenge. I decided this was within the rules, because hey — they’re my rules, I make ‘em up. So, take it away, Mutilator!
A colleague of mine told me an interesting story not too long ago. You see, he rides his bike to work most days (a decent 25-mile ride each way at that). However, he rides a relatively old $500 hybrid bike.
He described many of his “biking mates” that are continuously obsessed about the weight of their bikes. “Oh my bike is pure carbon with weave damping and only weighs 1/10th of an ounce!” Or, “I just ordered these new replacement carbon components and now my bike weighs 20 ounces lighter!”
Through all their boasting and conversations, though, he never cared, because he knew whilst they were always fiddling with their bikes, he’d actually be riding his. [Click to continue...]
He that is of the opinion money will do everything may well be suspected of doing everything for money.
— Benjamin Franklin
A dollar is a dollar, right? Setting aside rare collectibles, of course, and assuming they’re both in spendable condition, a particular dollar is worth as much as any other, right? Surely that must be true. Our entire monetary system is based on it. It’s what money is for, really — to provide a uniform medium of exchange.
Except it isn’t true. I’ll prove it to you. [Click to continue...]
I have always considered that choosing a companion for life was a very important affair and that my happiness or misery in this life depended on the choice.
— Ezra Cornell
Just so there’s no confusion about my prior post on 401(k) loans, let me be clear: while Suze Orman and her ilk are dead wrong to say that they are always a bad idea, that doesn’t change he fact that they are usually a bad idea, in the same way that credit cards are — most people tend to use them poorly, and can get themselves into trouble by doing so. So don’t go thinking I was recommending you go willy nilly with them.
Now that that’s settled, let me share an example of putting a 401(k) loan to good use. A while back, a friend of mine was fretting about not being able to save as much as she’d like, in part because of having to make student loan payments every month. I looked over her finances, and discovered a few things:
- She had over three times as much money in her 401(k) as her student loan balance.
- The loans were at 6% interest.
- Her savings rate was already substantial.
- She had a solid emergency fund, but she didn’t want to raid it to pay the loans down.
- Her job situation was stable — she had been at the company for over 13 years.
- She lived in a rented apartment, and had no other debts.
[Click to continue...]