We cut the cable! Woo-hoo!

We finally did it:  We dropped cable TV and our land line phone, saving lots of money and not really giving anything up.  The only people who ever called the land line were solicitors and our parents, so we switched to mobile only.

We added HD antennas, so we still get the channels we want (we watch very, very little TV).  And we got a pleasant surprise: Our TIVO will record off the antenna.

We also bought Rokus.  Mrs. Eternity Matters found a few things she likes on the Roku, such as a Pilates channel, music channels, access to the Sirius account, and more.  And Netflix and Amazon streaming are way faster on the Roku than on TIVO.

I must say it was a lot of fun to return the TV hardware to Comcast.  We are keeping our Internet service with them.  I got a good deal for this year at least — a little less than U-verse for theoretically higher speeds, plus we don’t have to change email addresses.

Unlike Rat, I don’t care if I don’t have ESPN.
pearls cable

 

 

 

Timeless retirement investing advice: Use index funds and don’t get greedy

This is so simple but so important.  Trying to out-guess the stock market experts is for suckers.  I learned early in my career that even with loads of internal information that you still can’t predict what the market will do.  I never traded on it, of course, but there times when Compaq would release record earnings but the stock would go down because of some comments about future performance.

Just invest in broad index funds (mutual funds that mimic the overall market).  There is no need to chase stock tips or highly managed mutual funds.  The only exception would be if your employer sold you stock at a discount, which would mitigate the risk.  Just don’t be foolish like a lot of Enron employees were and put most or all of your retirement money in one company.  I knew way too many people at Compaq and HP who tried to time peaks and missed out.

As noted below, keep in mind the simple math: Index funds with minimal fees will yield 7%.  Managed funds will be more like 5%.  So you are 2 points behind, right?  No, it is much worse.  If inflation is 3%, then your net gain with index funds is 4%.  That’s double what you’d get with managed funds.

Via AAII: The American Association of Individual Investors.

Charles Rotblut CR: Since you founded Vanguard, would you explain why you think investors should use index funds?

John Bogle JB: Let’s start off with the obvious. Imagine a circle representing 100% of the U.S. stock market, with each stock in there by its market weight. Then take out 30% of that circle. Those stocks are owned by people who index directly through index funds. The remaining 70% are owned by people who index collectively. By definition, they own the exact same portfolio as the indexers do in aggregate, so they will capture the same gross return as the direct indexers. But by trading back and forth, trying to beat one another, they will inevitably lose by the amount of their transaction costs, the amount of the advisory fees they pay, and the amount of all those mutual fund management costs they incur: marketing costs, processing, technology investments, everything. When we look at the big picture of the costs of investing, including sales loads as well as expense ratios and cash drag, it is a foregone conclusion that active investors, in aggregate, will underperform index investors. It’s the mathematics.Borrowing a phrase from Louis Brandeis: It’s the relentless rules of humble arithmetic. The 30% of investors who own index funds capture almost all of the market’s return. In a 7% return market, indexing should deliver approximately 6.95% to investors. A typical Vanguard all-market index fund charges 0.05%. The remainder—those who are trading back and forth, hiring managers, and all that kind of thing—will incur costs, in round numbers, of about 2% per year. So, the indexers are going to capture pretty close to a 7% return in a 7% market, while the active investors, who also collectively own the index, are getting the same 7% gross return minus about 2% for all those fees and costs, a net return of 5%. It is definitional tautology that the indexers win and the traders lose.

I highly recommend Vanguard for their mutual funds.  They are very easy to do business with and have extremely low fees.

The law of unintended consequences, minimum-wage style

Via Will the last person leaving Seattle please turn off the lights?

Asian Weekly, a Seattle-area weekly, spoke with several workers who had recently had their hourly wage raised to $15 and experienced the negative consequences of the mandate.“Are you happy with the $15 wage?” I asked the full-time cleaning lady.“It sounds good, but it’s not good,” the woman said.“Why?” I asked.“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.What else? I asked.“I have to pay for parking,” she said. [Emphasis added.]Asian Weekly also spoke with a part-time waitress who said her tips were much less than she used to get.While the results of minimum wage hike at the SeaTac has been mixed at best, Seattle’s minimum wage increase is a socio-economic experiment that has much larger ramifications. In fact, it may ultimately cost more to the workers that the hike is intended to help as well as to the city at-large than its backers realize.

That’s just one example of many.  This is simple: When the cost of wages rises too much then automated processes that used to be unfeasible become cost-effective.  Then jobs are eliminated completely.  Or sent overseas.  But hey, the do-gooders can release endorphins and tell themselves how compassionate they are.

Leftists don’t do a good job at thinking into the future, and they literally fail at basic economics.

A great overview on Social Security

This isn’t about how Social Security is a Ponzi Scheme.  It is about how to optimize your benefits and recover as much of what you put in over the last few decades as you can.  The HP Alumni Association sent this link that has lots of useful information — Social Security – Hewlett-Packard Alumni.

This PowerPoint presentation is easy to follow and tells you all sorts of important things.

Enjoy!

What?! AT&T did something helpful?

Yes, but they haven’t gone soft or anything.  It was just one of the benefits of capitalism.  Yea for competition!

After a couple decades of hopelessly complex and painful billing methods schemes*, AT&T now has a group plan that actually helps you.  Instead of a separate data plan for every smartphone and tablet you own, you can combine them into one.  You actually save a little bit and have the flexibility of pooled data.

We were able to add my daughter and son-in-law and my parents to our plan.  We have a 10GB data plan for seven phones and an iPad.  It helped spread our data costs a little and literally cut their bills in half.

We also get unlimited minutes (and we already had unlimited texts), so we never have to worry about those again.

* Watch your bills closely whenever you make a change.  They have a habit of “accidentally” double-charging you for the first month.  Just call and ask about it and watch how quickly they fix the “mistake.”

Please read these timeless and simple investing tips

Yes, that is the most boring title ever, but please read anyway.  This is important.

The Sheep and the Wolves: Smart Investing Made Simple had some great advice for all investors.  There are always risks — especially in the economy we’re suffering through now where a major crash is possible — but this advice should work well regardless.  The risk of completely sitting out of the market is that inflation drives stocks up for a time and you miss out on those gains.

The odds of you timing the market perfectly or even well are extremely low.  Most experts can’t even do it.

Even picking individual stocks is a challenge for amateurs and pros alike.  When I used to work for Compaq / HP I sometimes had access to earning per share results and projections, the holy grail of investment information (no, I never abused it — I always invested steadily and could only trade in narrow windows each quarter).  But even with that knowledge I couldn’t guess where the stock would go, because we would sometimes see the stock dip even after record earnings.  Why?  Because of some comment about future earnings or even a misstatement by our CEO or CFO.  The lesson?  Don’t try and be an expert about market timing.  Even with the ultimate inside information I still wouldn’t have been sure to win.

I also saw how a company could drive up a stock price by mortgaging the future.  They would rush out a new product to hit quarterly earnings then suffer for years because of quality issues and customer dissatisfaction.  Or if times were tough they would consume financial reserves that had been built up in conservative years.  That gave the illusion that things were still going well, but eventually the reserves ran out.  In theory the Big 4 auditors would have done something about that, but their value is highly overrated (I say that as a CPA who used to be in a Big 8 firm, back before they started merging).

I was glad to see that two of the Vanguard Funds I’ve used for years were listed (VGSTX and VTSMX).  Vanguard is easy to use and their low cost model is crucial, especially in down years.  If your broker is churning your investments and charging you upwards of 2% over the course of a year, then in a year of 5% returns he has taken 40% of your gains, leaving you with nothing after inflation.  Buying a mix of mutual funds and holding them is the key.

The other key, of course, is to start early.  There are lots of ways to convey the benefits of compound interest, but no matter how much you make I urge you to start young.  If you save 10% per year for your career you will be fine in retirement.

Here’s a sample of the link.  I encourage you to read it all.

Stock-market investors are like these sheep farmers. Collectively, they enjoy investment returns of roughly 10 percent per year. Individually, however, things are different. Most investors suffer severe losses from the wolves of Wall Street. Wolves, by the way, who don sheep’s clothing to convince investors to trust them. (These investors also have a tendency to make things worse by selling their flocks when sheep prices fall and expanding them when prices rise.) If you want to be a successful farmer, you have to understand how farming works, and how to protect yourself from the wolves. Fortunately, it’s not as tough as it seems.

The financial industry wants you to believe that investing is difficult. If you buy into their message, if you accept the premise that you need help to invest wisely, they can charge you big bucks to handle your money. The truth is somewhat different. Investing is simple. In fact, it can be one of the easiest things you do while managing your finances. How simple? Let’s boil it down to just a few sentences.

Here’s how to invest wisely:

Set aside as much as you can in investment accounts. Prefer tax-advantaged accounts (like a 401(k) or Roth IRA) before taxable accounts.

Invest all of your money in a low-cost stock index fund, such as Vanguard’s VTSMX or Fidelity’s FSTMX.P

If the stock market makes you nervous, allocate some portion of your money to a bond fund. Or invest instead in a low-cost combo fund like Vanguard’s VGSTX or Fidelity’s FFNOX.

Continue investing as much money as possible. Never touch it. (Nothing makes a bigger difference to the size of your flock investments than how much you contribute.)

Ignore the news and ignore your fund.

That’s it. Seriously. That’s all you have to do to earn returns better than 90 percent of other investors.

There are scores of books and published research papers that support this strategy. It’s also the strategy that Warren Buffett (and other top pros) recommend for 99 percent of investors. If you’d like, you can spend days or weeks or months reading about why this works. Or you can trust these folks and do it.

Freakonomics’ double fail on abortion

Freakonomics Rev Ed: (and Other Riddles of Modern Life) is a fascinating book that makes a lot of valid and interesting points, but the authors had a double fail on the topic of abortion and crime.  (See the Amazon review at the bottom for more about the book, and also see their blog.)

First, while seeming to have cleverly uncovered the reason behind the dramatic 1990’s crime drop (they thought it was because Roe v Wade had reduced the number of potential murderers), it turns out that they missed some obvious race-based statistics and the impact of the crack cocaine explosion and recession.

Second, and more importantly, they ignored what abortion is: The unjustified destruction of an innocent human life, aka murder.  Yes, the Roe v Wade decision made it legal, but the act itself was unchanged.  So using their logic, if we legalized unjustified killings outside the womb then the murder rate would decrease.  Technically they would be right, but would that really be an improvement?

One of the charts from the book shows that by standard measures, homicides have gone down dramatically over the centuries and we are seemingly safer than ever.  And that is true — for those outside the womb.  But pre-born human beings inside the womb live in the most dangerous place on the planet — far more dangerous than a Chicago ghetto.

Simply put, even if the authors had been correct, murders outside the womb decreased because murders inside the womb were made legal. But that didn’t reduce overall murders, it increased them!  All they had done, ironically enough, was murder the future murderers before they murdered. Oh, and they also killed a bunch of non-murderers — tens of millions of them.  At least the book did get one thing right: Legalized abortion dramatically increased abortions.

This brings to mind Bill Bennett’s comments on this theory, when he noted that killing black babies would reduce crime while simultaneously noting how evil the abortions would be.  Of course, the Left still tried to brand his comments as racist, even though they are a mostly white group supporting mostly rich, white, male abortionists who kill black babies at a rate three times that of whites.  But they definitely aren’t racists . . .

All murder statistics should include abortions.  The real murder rate was decreasing until the 1970’s, when it spiked up dramatically.  We’ve just played word games to make it appear otherwise.

———-

Amazon review:

Economics is not widely considered to be one of the sexier sciences. The annual Nobel Prize winner in that field never receives as much publicity as his or her compatriots in peace, literature, or physics. But if such slights are based on the notion that economics is dull, or that economists are concerned only with finance itself, Steven D. Levitt will change some minds. In Freakonomics (written with Stephen J. Dubner), Levitt argues that many apparent mysteries of everyday life don’t need to be so mysterious: they could be illuminated and made even more fascinating by asking the right questions and drawing connections. For example, Levitt traces the drop in violent crime rates to a drop in violent criminals and, digging further, to the Roe v. Wade decision that preempted the existence of some people who would be born to poverty and hardship. Elsewhere, by analyzing data gathered from inner-city Chicago drug-dealing gangs, Levitt outlines a corporate structure much like McDonald’s, where the top bosses make great money while scores of underlings make something below minimum wage. And in a section that may alarm or relieve worried parents, Levitt argues that parenting methods don’t really matter much and that a backyard swimming pool is much more dangerous than a gun. These enlightening chapters are separated by effusive passages from Dubner’s 2003 profile of Levitt in The New York Times Magazine, which led to the book being written. In a book filled with bold logic, such back-patting veers Freakonomics, however briefly, away from what Levitt actually has to say. Although maybe there’s a good economic reason for that too, and we’re just not getting it yet.