Gen Y - Retire Rich!

Post #83 - Beginning of Part 4 - Good Advice, Bad Advice, and News About Investment People

Post #83

Part 4:  Good Advice, Bad Advice, and News About Investment People

I’ve been concentrating on the current market problems for the last few months.  There is not much more to say about this extremely difficult period.  Now you have a taste of how bad things can get, and how tough it is to stick with your plan.  As I said before, investing is simple.  Sticking with your plan is very hard.

Let’s try to move on to lighter topics.  Enough doom and gloom.  How about some humor?

Let’s look at advice other people are giving you and make fun of them! 

Here’s Some Good Advice
Check this link: 10-Steps-to-Retire-a-Millionaire

Don’t these ideas seem familiar?  Of course, they do, I’ve been saying the same thing, but with more savoir faire, panache, and style.

Let’s look at the points in the article:

Set a goal – Check, we have written asset allocation plan.
Start saving – Check, we are saving 20% of our gross annual salary.
Get aggressive – Check, our asset allocation plan requires owning more equities than bonds/cash.
Prepare for Rainy Days – Check, we have an emergency fund.
Save More – Check, 20% is more.
Watch your spending – Redundant, you can’t save without reducing spending.
Monitor your portfolio – Check, we rebalance once a year.  Other than that, we try not to look, because it will cause excessive pain or too much euphoria (right now, excessive pain is the feeling du jour.)
Max out your options – Check.
Catch up contributions – Doesn’t apply until you are age 50.  So you Gen Y guys don’t have to worry right now.
Have patience/start as soon as possible – Check.  Start saving and investing as soon as possible, to take maximum advantage of the power of compounding.

So you see, I am a fraud.  I am not telling you guys any new stuff.  Everyone knows the tricks I am teaching. 

Then why isn’t everyone a millionaire?  I don’t know.  If you follow my advice and live long enough you will wind up a millionaire.  But for some reason, most people can’t follow my path.

By the way, have you noticed that I am starting to throw a few French words into the posts?  Just trying to show off a little bit. I heard that if you throw a few foreign language phrases into your conversations, it impresses people.  So I’m giving it a try.

Arrivederci!

Post #82 - Do Minority Groups in the US Have a Money Disadvantage?

Post #82

Part 3: Money and Investing (continued)

Do Minority Groups in the US Have a Money Disadvantage?
In the last two posts we decided that older people made more money mistakes than younger people in the last year.  We also decided that we don’t know whether women are better investors than men, but they have the decked stacked against them in a few ways that men don’t.  So they need to do a better job than men, just to end up equal.

What about minority groups versus non-Hispanic Caucasians?  Is one or more of these groups at a money disadvantage compared to the others?  Absolutely.

Let’s establish a couple of givens:

• Some groups will operate a higher number of small businesses per capita than other groups.  The ones with the higher percentage will have a money advantage, since small business ownership is directly linked to higher wealth.
• Some groups will have higher average earnings than others.  Again, this gives them an advantage.
• Some groups will save more than others.  This gives them a money advantage, provided they invest the savings appropriately and don’t hide it in a shoebox.
• Not all groups invest their money in the same assets.  Some asset classes will perform better down the road than others.  The ones who invest in the better performers will have an advantage.

Which groups are more likely to earn more?  Which will open small businesses, or save more, or invest more?  Here are parts 1 and 2 of a 2 part series about minority groups in the US and their relationship with money: Minority Report, Minority Affairs.  This will take a while to read, but these articles give us a lot of answers.  It’s amazing how much each group’s money perspectives are shaped by history and their cultural experiences.

After reading all this I say again.  Some groups will not do as well (money wise) as other groups in the long run.  Absolutely. 

I have no idea of how to fix the money discrepancy between the different groups.  Are their any social scientists out there that have some ideas?

Post #81 - Do Women Make More Money Mistakes than Men?

Post #81

Part 3: Money and Investing (continued)

Do Women Make More Money Mistakes than Men?
The last post talked about people making mistakes with their money this year.  Do women make more money mistakes than men?  Does it matter?

Here’s a link that indicates that women are more prone to anxiety disorders: Anxiety Disorders and Women

Does that mean women will make more investment mistakes?  Maybe not. 

I haven’t seen any scientific evidence one way or the other.  Merrill Lynch published something in 2005, based on a phone survey of 500 women and 500 men.  Based on the phone conversations, women made fewer mistakes and were more satisfied with their performance.  There were no hard numbers of actual percentage returns to back up the results, so I don’t know how valid that study was. 

For instance, I could make three mistakes and you could make five mistakes, but you could still get better returns than I did.  Yet I could be more satisfied for my performance, because you set higher goals than I did.

Lots of bloggers have their opinions about this.  I don’t know which gender is superior at investing. There are bigger issues women should worry about.  Namely, you ladies have a tougher financial life ahead of you than us guys do.  That’s the important point.

Why do I make this statement?

A while ago, this blog got a plug on Jezebel.com.  There was a post on Jezebel about women and investing that wound up getting a lot of comments.  They offered this great link:

Study: Women Not Saving Enough

So I read the article and the comments.  Very important stuff for you ladies to consider.

1. For a number of reasons, women don’t earn as much as men.
2. There are years that women are out of the workforce, primarily because they are having and raising children.  They are not contributing to a retirement plan during those years.
3. Women are more risk averse than men, which means they are more likely to be 50/50 allocators rather than 60/40s or 70/30s.
4. Women start saving later than men.
5. Women live longer, which means their retirement dollars have to last longer.

How do you overcome the problems?  I have some ideas.

1. Don’t have kids.  Stay in the workforce.
2. Force your husband to raise the kids.  Let him sacrifice his career, rather than you.
3. Start saving much earlier.  This means you have to get other people to pay for your fun when you are 22 through 26.  Find some macho guys who don’t know you are using them for their wallets and let them show you a really good time for a few years.  Then dump their dumb butts and marry the sensitive guy who is willing to raise your kids.
4. Don’t live longer.  Party your tootsies off when you hit 60.  Eat lots of trans-fat.
5. Take on more risk, if you can handle it.  I think that a few million years of evolution have made you more risk-averse than men.  If that is true, how do you change something like that?  It’s almost like asking you to change your eye color.  Maybe, your only solution to this problem is to save more (and hide it from your hubbies, because they will spend it on chainsaws and large trucks).

On the plus side, you don’t have a lot of testosterone.  This is a good thing when it comes to investing.  You will be less prone to do something stupid when the guy in the next cubicle calls you an index fund weenie.

Does anyone have any more useful ideas as to how women can improve their financial well being?  I would love to hear what some of you ladies are doing to make sure you have a big pile of money when you retire.

Regarding Jezebel.com.  I should have signed off after I read the investing post.  Instead, I started reading other Jezebel posts.  After an hour or two of reading I decided that:

1. Middle aged men should not access this website.  It makes us blush.
2. The world has changed since I was in college.
3. Life would be more interesting if my wife read these types of “blogs for ladies” instead of working in the garden and teaching exercise class.

Post #80 - Lots of People Made Big Mistakes This Year

Post #80

Part 3: Money and Investing (continued)

Lots of People Made Big Mistakes This Year
The personal finance column in USA Today, dated November 10, 2008 noted these statistics:

• During the last 12 months 20% of people 45 and older stopped contributing to their retirement plans.
• During the last 12 months 13% of older workers took money out of their retirement plans prematurely.
• From January 1, 2008 through the end of October there were more transfers out of stocks and into fixed income funds (bonds) than any other time since 1997.

I’m sure that during November and December, these statistics got much worse.

The people who did these things were older than Gen Y, uninformed and scared.  

It’s OK to be scared.  I confessed in an earlier post that I was having a really tough time keeping my allocations intact through the bad times.  I advised those of you who could not handle the heat to try to wait things out, and then move to an asset allocation plan more suited to your temperament. 

I even gave my blessing to make immediate changes to your asset allocation plan if the constant worry was ruining your sex life.

It’s also fine to get older.  Everyone who doesn’t die seems to be guilty of getting older.  I know it’s happening to me.  I can’t leap tall buildings anymore.  I find it tougher to wrestle alligators than it used to be. 

But it’s not OK to be uninformed.  If you are going to sweat and strain to save your money so that you can invest it in the stock market, you have to know a little bit about stocks and bonds. 

I am telling you Gen Y'ers exactly what you need to know so that you don’t panic when times get tough.  Let me summarize what these other people didn’t know:

• You have to save and invest regularly, through good times and bad.
• You must have a plan and stick with it.  Don’t throw it into the ocean when times get tough.
• Your plan should include owning a good amount of riskier asset classes like US and International equities.  Fixed income funds will not generate enough wealth for you by themselves.
• You invest long term money.  Anything that you plan to spend in the next five years is not long term money.

The next time you are talking with your parents, ask them if they panicked in 2008.  If they say yes, you are allowed to feel superior.  Walk around the house with a smug look for a few days.  Since you didn’t panic, you’re entitled.