I watched Frontline’s “The Retirement Gamble” with my wife tonight. It starts with the shift from company-managed pensions to 401K funds managed by all of us — or our financial planners. It is not a feel-good documentary. Many Americans are losing huge chunks of their retirement savings to fees, possibly for little or no benefit (well, not to the savers, anyway; the fund managers are getting plenty of benefit).
This was not a problem in the roaring 90s, when a monkey could make money in the stock market, but it’s a big problem now, when many Americans have seen their retirement accounts fall off a cliff, or at best, go flat.
What’s the root of the problem? According to Frontline, it’s not so much the fees, but the fact that financial advice is mostly doled out by salespeople whose only ethical requirement is to sell you something “suitable.” In other words, the financial products they sell you just have to sort of resemble the kind of product you want. They can’t sell you an insurance policy if you’re looking for a mutual fund, in other words.
Few financial advisors are fiduciaries, a word that means they would be required to put your interests ahead of their own. (Not salespeople, in other words.) It doesn’t seem to matter that most Americans have no idea what that word means or how to identify a fiduciary (hint: ask).
Are there good, well-meaning financial advisors out there who are not fiduciaries? I’m sure there are. I think my financial advisor is one of them. But whether you go with a salesperson or a fiduciary, you need to ask yourself (and your financial advisor, fiduciary or not) some important questions:
Above all, be involved in your retirement planning. If your investments aren’t growing, find out why — or find someone else to help you manage your investments more effectively.
I picked up a few “Trader Ming’s” noodle boxes at Trader Joe’s the other day, thinking they would be good for a quick lunch. And the image on the box looked pretty great. The product inside does not really measure up to the cover art, though. Check it out:
I can’t say that I am all that surprised. Most food packaging is like Glamour Shots for the contents — which are, in this case, 600 calories and nearly 25% of your fat, sugar, and salt allowance for the day.
The way we file taxes has got to be the least-efficient way possible. Every year, millions of Americans dig through a year’s worth of receipts, year-end statements, and their memories to assemble millions of stacks of paperwork that are processed by hand by an army of IRS employees and contractors.
This is ridiculous, and I’m not even talking about how complicated the tax code is.
We all assume that having things is the same thing as having wealth. You see someone driving a Mercedes, and assume he or she is wealthy. More often than not, it just means that person has a huge loan payment to make each month. Cash flow is not the same thing as wealth. Wealth means having assets — money in the bank, valuable investments, and things unencumbered by loans. If you owe money on all your things, you just have liabilities.
You can have a lot of things and still own nothing. Like the founder of Michigan Brewing Co., who just filed bankruptcy and listed $3,236 in assets and more than $8,200,000 in liabilities.
Very few people are truly wealthy. You cannot judge a book by its cover, and you cannot judge wealth by the number of things someone has. (via Daniel Gershburg)
It turns out that less-expensive products aren’t always cheaper in the long run, as we found out when comparing a $529 Nexus One to a $199 (on contract) iPhone. The up-front cost is never as important as the ongoing cost.
This holds true even when comparing a $1,200 espresso machine to a $120 one.
Refund anticipation loans are very similar to payday loans; they are short-term, high-interest loans made in anticipation of future income — your tax refund, in this case. And they are a bad deal.
The best interest rate you can expect from a refund anticipation loan is around 36% APR. That is two or three times the rate someone with decent credit can expect to get from a credit card. But APRs of 100% or more are still common. That means if you paid the loan back in one year, you would actually pay back twice the amount you borrowed.
In other words, the math doesn’t make sense. It is much better to just wait for the check from the IRS.
While buying gifts this year, I found myself in the monument to consumerism, the Mall of America. To get my bearing, I did a lap to see if I could find what I wanted: a pair of shoes and an insulated travel mug for my wife. Although there were dozens of stores at which I could have bought my gifts, I only walked into two: Williams-Sonoma and Clarks.
That’s because I did not want to stand in front of a wall of insulated tumblers with no indication of which will do the best job. I just wanted a good tumbler, and I didn’t want to have to think too much about it. Williams-Sonoma only carries high-quality stuff, and as it turned out, they only carried one travel mug in two sizes. It’s awesome, and my wife loves it.
On the one hand, this is awesome. Making deposits using the camera on your iPhone or Android phone is way more convenient than going to a branch — especially if you don’t have a branch nearby. On the other hand, practically every other bank in the country has been doing this for something like five years, and Wells Fargo’s mobile app is one of the worst I have used.
Arithmetically, it makes the most sense to pay down your highest-interest debts first. But psychologically, it helps to feel like you are making progress. I linked to a calculator for using the “snowball” debt reduction method before, but I’ve never really discussed how to use the snowball method. Here’s how it works.