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. 

More on welfare than working: A design feature of Obama’s America, not a bug

Via More Americans collecting welfare than working full-time — you’d think this would be front page news and a cry for change, but Obama & Co. are getting exactly what they want.  If you aren’t familiar with the term Cloward-Piven Strategy or the philosophy of Saul Alinsky, then you really, really need to expand your media horizons.

When people see things that are obviously bad, like more people on welfare than working, they tend to think that the Leftist Obama/Democrat policies aren’t working.  But if you know how Obama, Hillary Clinton and others follow the philosophies of Cloward, Piven and Alinsky then you know that our Leftist leaders are getting exactly what they want: More dependence on government.  More crises designed to let them take more power.

If you think they are troubled by millions of people losing jobs, insurance, etc. and becoming more reliant on government then you are mistaken.  They are executing their agenda as planned.

I’m with Bono on this one.

Via Bono: Only Capitalism Can End Poverty.

This is a great day. For years, Bono has been something of a pain, banging on about the need for billions of dollars in Western foreign aid to Africa. I have criticized him for ignoring the real source of African poverty – lack of capitalism – on numerous occasions.

But, unlike many who hate capitalism without reservation, Bono is open to changing his mind. Here is Bono giving capitalism its due recognition during a recent speech at Georgetown University. As the musician put it, when it comes to poverty “free enterprise is a cure.”

Indeed, the evidence is overwhelming.

According to the World Bank, global poverty is declining rapidly. In 1981, 70 percent of people in poor countries lived on less than $2 a day, while 42 percent survived on less than $1 a day. Today, 43 percent live on less than $2 a day, while 14 percent survive on less than $1. “Poverty reduction of this magnitude is unparalleled in history,” wrote Brookings Institution researchers Laurence Chandy and Geoffrey Gertz in a recent paper. “Never before have so many people been lifted out of poverty over such a brief period of time.”

Yes, we should still share with the less fortunate — preferably out of our own wallets.  But we must use good discernment with giving to ensure that it isn’t counter-productive.  Know the charities you support and ensure that they are really making a difference and are run efficiently and effectively.  Use good discernment and pray for wisdom!  But don’t forget that making people more self-sufficient may be the greatest gift.

For example, one of the reasons we love and support the AIDS Orphan mission in Kenya is that it doesn’t just cost effectively (literally $10/child/month) feed, clothe and educate these orphans (and the widows who take care of them), it also gives them life skills.  We met many kids who baked bread, sewed, did hair care, planted trees, etc. and made such good livings that they supported themselves and their siblings.  Their joy was contagious.  We feel blessed to be a small part of that and feel confident in giving to the program because we’ve seen it first hand many times and have gotten to know the leaders well over a number of years.

Corporatism vs. Capitalism

This image makes excellent and foundational points about why increased regulations rarely solve problems.  Why?  Because when you peel back the layers, the large corporations turn out to be the authors and the beneficiaries of the regulations.

There are many ways to do that.  Even in business, requests for goods and services are often subtly tailored to steer purchases towards certain vendors.  The same thing happens in government.  The IRS exceptions or language for certain laws may not mention a corporation by name, but it just so “happens” that the preferred corporation is the only one meeting the criteria.

The winners are the large corporations and the politicians that they essentially pay off during the process.  The losers are the smaller businesses, the consumers and the taxpayers (of course those three overlap in places).

And once regulations are in place then two things are nearly certain: They will never disappear and they will continue to grow.

This also applies to the bailout / “too big to fail” nonsense.  What do you think would happen if you could go to Vegas knowing that you would get to keep any winnings but that taxpayers would pay for any losses?

When in doubt, always go with less government and less regulations.

Ivy League school doesn’t accept Advanced Placement credits — good news or bad?

Via U News: Ivy League school no longer accepts Advanced Placement credits. Will this be a trend? – They tried to rationalize it from an education standpoint, but that is a joke.  The AP tests are standardized, which would mean that it wouldn’t matter what high school someone went to.  They either knew the material or they didn’t.  And the college pretends that they have something special to offer in basic classes like history, English, etc. that no one else has access to. Sure.

This is about money: They want you to pay $50,000 per year to take basic courses, which is ridiculous.

I highly encourage people to take dual-credit classes at their local community college.  The community colleges cost a fraction of the state schools, and if you are a high school student they cost almost nothing.  If you home school you can graduate high school with almost a year’s worth of credits.

The good news is that the college model is starting to crack.  It simply can’t stand another 10-20 years of cost increases that are multiples of inflation.  It is a bad move that they are taking away AP credits, but good news that they may drive people to more cost-effective solutions.

When Liberals unwittingly apply conservative economic principles . . .

The principles of capitalism work and have raised more people from poverty than Communists and Socialists ever dreamed of.  And even though Liberals literally fail at basic economics, every now and then they accidentally get one right. See Official: NY tax breaks would apply to ‘Tonight’:

The bill expected to be voted into law in coming days would provide a 30 percent tax credit for a “relocated television production.” Past and current tax credits have gone to new productions starting in New York, such as “Law & Order.”

Hmmm . . . so if you lower taxes, a business will be more likely to come to your location. Shocking.  And it stands to reason that if you raise taxes then more will leave.

Are the NY officials being irrational by offering the tax break?  No, because they realize that luring the Tonight Show will have all sorts of other benefits.  Too bad they don’t apply that across the board.

When you consider how the same behavior applies to countries you can see why jobs get outsourced (it isn’t just the wages).

How “food stamps” are helping to destroy the country, and how to fix the problem

I am all for helping the truly poor, but the current food stamp program is out of control and being systematically abused.  It is hard to conceive how much the program has grown under Obama, and we all know it would be a 24×7 news item if it occurred under a Republican administration.

The cards are basically treated like cash and can easily be converted to buy tobacco, alcohol, drugs — anything!  It was originally a program to help the truly needy but is now a thinly disguised vote-buying scheme.

We’ve all got examples of abuse.  My most recent one was a shoe salesman describing how his ex-girlfriend had literally thousands of dollars of tattoos while being on these programs.

The government could easily track the spending of these cards, but chooses not to.

The Kenyan hospital we visited on many mission trips has a worthwhile “food stamp” program.  Women walked long distances to get basic commodities and carried them back themselves.  Yet unlike most U.S. recipients, these women were extremely grateful and would dance and sing when they got the food.

The U.S. should go back to giving real food instead of cards.  Then the truly needy would get food and the fakers would skip the process entirely.  And the food would be healthier and less expensive: oatmeal, bread, apples, bananas, rice, pasta, butter, milk, OJ, peanut butter & jelly, corn flakes, sugar, flour, etc.

Oh, you don’t want those?  Tough!  That is proof that you don’t really need them.

And there should be drug and/or polygraph tests.  Have you gotten a tattoo or been on drugs while on food stamps?  Then you are cut off.

Enabling people to abuse the system harms the abusers, their children and those forced to pay for them.

Car buying tips

If you are in the market for a Honda in the Houston area, I highly recommend contacting Ali Fard at Russell & Smith Honda. We just replaced our 10 yr. old Honda Odyssey with a CRV and couldn’t be happier with it. I was dreading the car buying process because of all the games the salespeople typically play. I know how to get good deals but that doesn’t mean the process is enjoyable.

But this was different. Ali was extremely responsive, gave me a detailed drive-out quote via email with the best offer in town and took a lot of time to show us all the features of the new vehicle. It was, by far, the best car buying experience I’ve had.

The guy who did the paperwork didn’t try to high pressure me on any additions or extended warranties. I was in and out of his office in about 10 minutes.

Top three tips to get your best deal

1. Do your homework on Edmunds. They have great information on what people are really paying. The “True Market Value” prices are good to aim at and you can even beat them.

2. Go through the Internet salesperson at the dealership.

3. Be very clear about what you want. I always emphasize that all I care about is price (a Honda is a Honda, and I get my service done at Christian Brothers Automotive, not the dealership) and that I don’t like surprises. They are heavily rated and compensated based on customer satisfaction ratings so I make it clear that price and a lack of surprises will yield the highest satisfaction for me.

Some other things to think about

Unless your current car is costing too much in terms of repairs, seriously consider holding onto it.  It is the least expensive car you’ll ever own.

Consider getting your current car detailed.  For roughly $150 (typically much less than a monthly payment), it will look like new and help curb your craving for a new car.

Don’t just buy a new car to get better gas mileage.  Do a little math and you’ll find out that it will take years to pay back your investment.

Buy low maintenance cars and hold them a long time.  We aim at 10 years.

Check out Dealer Rater to understand who you’ll be dealing with.

Don’t buy high-tech extras like DVDs and GPS systems.  They cost 4-5 times what portable versions do and will be outdated quickly.  They cost a lot to fix if they break.  You also can’t transfer them to other vehicles.

Don’t look too eager when talking to a salesman.  You must be ready to walk away.  They get serious about negotiations when you are walking out.

Make your best deal on the price, then tell them you don’t like surprises and you’re sure that they won’t add in any charges such as “advertising fees” when they do the final paperwork.  Those should be part of the negotiated price, but they often sneak them in later.  A guy did that to me and I told him the deal was off unless he removed the $250 charge.  He did.

Don’t let them tell you they are “only” making $25 (or whatever) on the car.  That is a silly partial truth they use to describe the intercompany profit when one division of Honda, for example, sells to another division.  It is meaningless, especially when they try it on a CPA / finance executive with 25+ years of experience.

Go through the fleet dealer at the dealership if you can.  Most dealerships have a sub-group that sells to businesses who buy multiple cars.  Those buyers don’t have time for the gamesmanship of spending a whole day negotiating over each car.  The prices tend to be lower and non-negotiable.  Individuals obviously don’t buy a whole fleet of cars but sometimes a group like a credit union will combine the purchasing power to get fleet deals. You can submit what you want on the web and within an hour you’ll have lots of quotes.

Save up and pay cash.  When you tell them you’re ready to write a check when they agree to your price it gives you negotiating leverage.

The real outsourcing

Barack Obama is trying to appeal to people’s concerns about job outsourcing by making distorted attacks against Mitt Romney’s business record.  But I hope this backfires on him as his other attacks have thus far.  Consider these facts.

1. GE, one of Obama’s non-tax-paying cronies, is moving its x-ray division headquarters from Wisconsin to China. That’s one of many examples.

2. Tax rates are often bigger drivers than wage rates.  When Compaq shipped tons of jobs to Singapore in the 90’s it was because of Singapore’s tax rates.  I know, because I did many of the financial analyses.  Democrats have done nothing to make our tax rates more competitive.

3. The real problem with outsourcing isn’t that the jobs shift geographies but that they shift from citizens/taxpayers to non-citizens/non-taxpayers.  Therefore, illegal immigration is the ultimate catalyst for losing jobs.  Yet Obama has done everything he can to buy more votes by losing more jobs for his citizens.

4. Unions make U.S. businesses less competitive and foreign goods more attractive.

5. The anti-drilling Democrats send countless high paying jobs overseas, and most “Green” jobs have gone to other countries.

6. Oppressive and unworkable regulations like the Dodd-Frank bill and Obamacare make it more enticing for companies to move jobs.

Vote Republican to keep more jobs here.  More jobs here = less unemployment = more taxpayers = less people receiving benefits.