Ask Uncle Bill

It's Not Easy Being Green--continued

2009-07-07T11:18:47-07:00

As I said last time about solar power, I was a bit shocked. Let’s push some numbers. We invest $10,000 for ten panels that take up most of my roof and really upsets the homeowners association. For that my electricity bill goes down by 13%. Assuming a $200 monthly bill, the bill would go down by $26 for an annual savings of $312. Using the old payback formula, the solar investment would pay for itself in; let’s see here, $10,000 divided by the annual savings of $312 results in a payback of…. 32 years. I won’t be around in 32 years, I don’t think, so why bother?

But I soldiered on. There has to be something changing to make being green make sense. I then asked the salesman, “But, of course, the price for panels has to be coming down with all the investments and awareness of solar? Right?” His answer, “Wrong, the price is going up.” Seems that there is so much demand that the price is going up because demand is outstripping supply.

Ok, how about tax breaks? I keep hearing about what Congress is going to do, certainly they are on top of this. Yep, said the salesman, you get a 30% credit. A credit, not a deduction, which means my taxes go down by 30% of $10,000 for a cut in the price of $3,000. Now, we’re talking. Not so fast says the salesman. The 30% credit is good up to $2,000. That is the end of that.

Now, I’m getting frustrated. If the credit is only good up to $2,000, who is buying these things besides movie stars? The short answer—Businesses. Businesses who go solar get the 30% tax break but it is unlimited so if the panels needed to run a plant cost $200,000 they get a tax credit of $60,000. An added bonus—they can depreciate the whole investment in five years. Next time you buy a pair of boots, think solar—the Nocona boot company just switched over and got the credit.

I never give up. How about wind power? That really makes sense in Texas, just ask Boone Pickens. Yep, says the salesman, for the same investment as solar you would pick up a lot more energy plus the added bonus of a 30 to 100 foot tower sitting in my backyard. Try explaining that to the homeowners association. They won’t go for it.

I shot back at the salesman, “You guys have a unit on your web site that doesn’t stick up over the roof and is attached to the house. I could go for that.” He looked a little blank, then tells me he thought that was taken off the site. Why? Seems it doesn’t work. Darn. Finally something I could get really excited about and it doesn’t work. Just my luck.

I almost gave up. One final question—what about a whole attic fan? His response—noisy. Well, not really, I found out. Seems there has been a lot of work on this and I’m looking into an insulated, quiet fan that mounts in the ceiling, draws air up through the house, costs about $600 and projected to cut air conditioning costs by 30%. Requirements are wind and air at night that is cooler than the inside air. I got both.

This may turn out to be another dead end but at least it doesn’t have a 32-year payback period. Will let you know how it turns out. It’s not easy being green.

It's Not Easy Being Green

2009-05-31T10:59:35-07:00

When we built this new house we did everything within reason to make it energy efficient. Within reason means not paying so much up front you never get your money back but buying highly rated stuff like windows, doors, efficient water heaters and heating and air conditioning. Add blown in cellulose insulation and I thought we did pretty well. Which we did except the electric rates keep going up and all the savings seem to be going to the utility company.

So, I thought, how do I get rid of the electric company? How do I make the meter run backwards? Go solar, go renewable which is the answer for everything coming out of Washington these days. We can’t drill in Alaska or off the coast but we can “harness” the power of the sun. “Harness” appears in just about every article and sound bite related to energy suggesting the sun is just some wild colt running around the corral waiting to be broken and turned into a useful member of society.

So I went into the corral of the Internet and Googled “solar electric power.” The first thing that comes up is about ten web sites for government agencies that explain what solar is and how it works but doesn’t tell you how to actually go about putting in a system or who to call or who is good and who is bad. About the only thing the government sites tell you is that solar energy comes from the sun. I already knew that but what really gripes me is that our tax dollars are paying for this drivel.

Putting this aside I scroll down until I finally find some commercial web sites almost as bad as the government web sites with similar explanations but better pictures. Pricing is mostly absent so I fill in an email request for information and get a call from a lady in Houston who asks about my income and house size. Seems she wants to weed out the tire kickers so I act pretty enthusiastic about solar sounding more like Leo Dicaprio than a former finance guy.

I’m in luck because they just opened a Dallas office and a rep will call me which he does and we set up an appointment. I am a bit suspicious because solar, oil and gas and just about everything regarding energy has a lot of ex-shoe salesmen as front men and frauds are a fact of life. Having just been the general contractor on this house, I interviewed a lot of subcontractors and you figure out pretty fast if a guy knows what he is talking about. I gave the guy a 7 on a scale of 10, which is not bad.

He looked at the house, at the garage that faces south and the garage roof that would support the panels. He figured they could get ten panels on the roof then run a bunch of wires down into the attic into the storage room into an inverter which converts the direct current from the panels into alternating current (or is it the other way around?) into the fuse box with the power “harnessed” from the sun going directly into the house to run all our gadgets.

Did I say “all?” Not really. But first the cost—figure $1,000 a panel installed. That is, let’s see, about $10,000. A pretty big upfront investment but maybe worth it for total independence from TXU. Wait a minute, not so fast. Any guesses how much electricity ten big panels sitting on your roof will provide? Well, I was, no pun intended, shocked. 13%.

Details next time.

Longer Than You Think

2009-05-28T08:12:41-07:00

One nice thing about writing a column is putting it off, at least for a while but they don’t call it a deadline for nothing. So sitting here at 11am with a noon deadline, I have to do what I do best—steal something. Here’s the gist—most people go conservative in their investments when they retire which makes sense now with the market in the dumpster but won’t look so smart, or profitable, when the market recovers. Alternatives are outlined in the Wall Street article by Ian MacDonald titled “In the Long Term, Assume You will be spending.

First, because of medical advancements and, hopefully, a healthy gene pool, you may live a long time, like maybe to a hundred. If you do, let’s see how differing investments hold up over time, a long time.

A real popular investment(?) right now is something called an immediate annuity. Here is what McDonald says about this scheme—“ An immediate annuity is an insurance product (not investment product) in which the buyer relinquishes ownership of his (or her) hard-earned assets in return for a guaranteed income stream. Sounds great, right? Guaranteed! Guarantees are fun. Nothing’s ever guaranteed with investing! But buying an immediate annuity pretty much guarantees inflation will kill you.

We all know you should assume a longer time horizon (and it can’t hurt to err on the side of longer vs. shorter). So let’s say you have a 30-year time horizon (or longer!). If you need $50,000 a year to maintain your lifestyle—in 30 years you’ll likely need $125,000 because of inflation! Said another way: If you buy an immediate annuity, start thinking about how to explain to your spouse that in 30 years, you’ll be living on 60% less. And, you surrender ownership of the assets. If you get hit by a bus the day after buying the annuity—too bad, so sad—the insurance company gets your money, not your spouse or kids.” Ouch, nothing to like their, either in the short term or the long term.

Bonds, anyone? Here is Ian’s take on those—“If you have a long time horizon, stocks, or at least a hefty allocation of stocks, are probably most appropriate for you. Since 1926 there have been 62 rolling 20-year periods. In all but one (98% of the time), stocks beat bonds handily—and by an average margin of 3.8 to 1 margin. Some Gloomy Gus might say, “Yeah, but there was that one period. I’ll take the inferior returns in exchange for less day-to-day volatility.” Be our guest, but the margin for that one 20-year period when bonds beat stocks was a less impressive 1.4 to 1. Big whoop. In our view, hardly worth the odds. Plus, that one period required buying at the peak in 1929 and riding down the Great Depression into World War II—a pretty unique period.”

McDonald wraps it up this way—“Assuming a longer time horizon is the first step, but you can still get slaughtered if you don’t craft your strategy with enough growth. If you don’t relish living on much less later in retirement, bonds can actually be far riskier than stocks. As for the immediate annuity—we’ll assume you don’t hate your spouse enough to make that mistake.”

I guess I would try to simplify it a bit—annuities and bonds are stable, you know exactly what you are going to get. Unfortunately, you don’t know what you are going to get from inflation and there is the problem. Annuities and bonds are fixed, stocks are not which in the long run, and we are in this for the long run, is good. Stocks are not fixed because they represent companies run by people; people who want to succeed and get wealthy. You, as the investor with a long time horizon, should go along for the ride.

An Alternative Investment--The USO

2009-05-20T09:19:17-07:00

I have a personal interest in the military that I won’t go into here but when a friend suggested I check out the DFW USO, I arranged a visit. Most people know what the USO is—think Bob Hope and donuts—but the DFW USO is special.

When I arrived about 10:30am at Terminal B, Gate 18 there were a few soldiers playing pool, others lounging around. I ended up in a tiny, crowded office with Sheri and Lynne. Sheri is the director with a son in the Marines. Lynne is married to a Marine lieutenant colonel and they explained why the DFW USO is unique. A combat tour in Iraq lasts 12 or 15 months. At the halfway point a soldier gets two weeks leave and, depending on where they live, they fly from Iraq to either Atlanta or Dallas. When they go back they leave from the same. So each morning at DFW there is a flight coming in and one going out in the afternoon. A DFW USO volunteer is the first thing a soldier sees when he or she arrives and the last thing they see when they deploy.

It was now about 11:30 and Sheri took me on a tour starting out going through the terminal now filled with about 300 soldiers who had to report by noon. A lot of people comment on how young these soldiers look. I guess I’m used to that. I’m more impressed with how young they are and how professional they are. Maybe, professional isn’t the right word, try organized. Walking through this group, I heard laptops snap, Velcro ripped, Ipods stowed, backpacks loaded. All with an efficiency that amazes me. When I was their age I considered getting out of bed by noon to be an act of engineering genius. It’s amazing to see a huge group of teenagers that isn’t drunk. I tend to check out patches and saw AirCav, 82^nd and 101^st Airborne, Rangers, some Air Force and Navy, even NCIS.

Security is easy when you are with the USO and got inside the terminal. First, you should know that the USO relies totally on volunteer gifts and hats off to Continental Airlines. When they shut down their operation at DFW after giving up to American, they donated their equivalent of their Admirals Club to the USO. Here the troops have Internet access, TV, movies, sleeping quarters, a children’s playroom and free food. The place was packed. Hats off here to Pepsico, Starbucks, and Verizon for providing the food and communication, again all free to the troops.

The DFW USO recently started a program that is expanding to all USO locations called United Through Reading where a soldier goes into a studio, reads a story or plays a song for his/her kid and the event is video recorded. The USO prepares a DVD and FedEx’s it to the family. The USO used to pay FedEx till the driver figured out what was going on and now the company delivers for free.

Finally, the USO organizes the meet and greet for the troops coming in and Operation Send Off for those going out. If you are interested in participating, call 972-574-0392 after 8pm the night before you want to go.

Like any volunteer organization, the USO is always short on money and short on donations of goods, so forget personal gain for a minute and cough it up for these troops. It is money well spent. If you want to see this in action, plan a trip to Terminal B at DFW. Gas is expensive but it will be the best investment you have ever made.

The IRA-Don't Let It Get Away

2009-05-12T10:17:57-07:00

This is an article I wrote for a newspaper which helps explain why newspapers are in trouble--you have to dumb things down a bunch. But maybe somebody will find it a help. A small help but maybe a help.

I’m usually not a big fan of the New York Times but they had a pretty good article by Alex Tarquino about the often-overlooked IRA.

First, what is it? IRA stands for Individual Retirement Account, which most people know but most people don’t use. Ninety percent of annual IRA money is money, including mine, rolled over from 401k and 403b accounts when people leave their jobs. Nothing wrong with that but here is what is wrong—only fourteen percent of people eligible to contribute to IRAs do so.

Why? First of all, basic laziness. Wealth building requires action and most people are financial couch potatoes. Cumbersome paperwork, risk of loss, tying up money for twenty plus years and a deep seated distrust of financial institutions make us all wary and willing to put it off to tomorrow, or the day after that, and so on.

If that wasn’t bad enough, throw in the Congress and the Internal Revenue Service that have made the rules complex, if not totally incomprehensible. If you want to check out the rules, go to the web page of the Investment Company Institute. But be warned—the rules for IRA’s cover 108 pages. Too much for me.

So let’s make things a bit less complex. First, if you have a 401k or 403b, you can probably forget about an IRA. At least, until you quit. You want to max out your company’s retirement plan because they will usually do a match—you contribute and they contribute. An IRA is your money only.

But if you don’t have a company retirement plan, check out an IRA. There are two kinds—traditional and Roth. Here things are a bit simpler. A traditional IRA reduces your taxable income by the amount of the contribution. A Roth IRA contribution is made with after tax money but the earnings accumulate tax-free. My general rule is that if you are young and just getting started, go with the Roth.

Another simple rule—if you are single and do not have a retirement plan at work you can contribute the max to a traditional IRA regardless of your income level. The max this year is $5,000. $6,000 if you are over 60.

Here’s where Congress made things a lot more complex. If you are single but ELIGIBLE for a retirement plan at work you can still max out an IRA but only if you make less than $53,000. If you make over $63,000, you cannot contribute anything. If you are married, both work and both are eligible for a company retirement plan; you qualify for an IRA only if you have an adjusted gross income less than $85,000.

A Roth IRA is less complex as you can be eligible for a company retirement plan and still contribute but you have to make less than $101,000.

Why all the complexity? Congress. They wanted to stop those rich people from moving their money around tax-free.

Got a headache? I sure do but one final statistic and then a plan for taking the complexity out of retirement planning.

Here is the final statistic. Don’t feel too bad if you haven’t done the IRA because most people don’t even maximize their 401k plan. The important statistic is this—while 75% of employees eligible for a 401k do participate, only ten percent contribute the maximum.

So you have a lot of company if you don’t have an IRA or max out your 401k. But that is no reason to feel good. In this day and age, the traditional pension is pretty well shot so you are the only one responsible for your retirement and that means you have to get on it.

How? Make somebody else do the work. Go to your Human Resources department and make them fill in the paperwork. They will do it. That is their job.

If you want to contribute to an IRA and don’t know the rules, go to the people that do. Those people are bankers and mutual funds companies. I try not to name names but removing any obstacle to wealth is worth it so I recommend Fidelity Investments and Vanguard for making things easier, if not easy. Call them up and ask them do the paperwork and they will.

I Wrote This on May 22, 2008--A Year Ago

2009-05-06T08:02:25-07:00

The Great Predictor

The stock market has been called the Great Predictor, and the Great Humiliator, by financial pundits for years. But right now the Great Predictor is having some problems. But first here is how the market works—somehow the market figures out what is going to happen in about six months and acts on that knowledge which is why past knowledge doesn’t help much in timing the market in the short term. It does in the long term but not the short term.

So what is the market saying about the next six months? Right now, going way up one day and seemingly farther down the next, the market is saying, “I don’t know.” The market is confused. Why? What happens in the next six months? The Presidential election, of course.

One thing the market really doesn’t like is political change. The market does best when the political scene is in gridlock. The market seems to like a Republican president and a Democratic congress--a pretty good recipe for gridlock. When one side gets too much power and starts really changing things, the market gets spooked.

John McCain admits he doesn’t know much about economics and Barack Obama proves it with his total lack of an economic plan except tax the rich. So the market, in the short term, is pretty wary.

But let’s look at the long term. And the market will probably repeat itself because it has except for two exceptions since 1925. The last two years of a presidential term are usually bullish meaning the market goes up. In the first year of a presidential term, the market goes up if a Republican is elected. It usually goes down in the second year of the term. If a Democrat is elected the market usually goes down in the first year of the term and up in the second. This happens because the market thinks a Republican will be better for the economy so the market goes up in the first year but down in the second as the miracle doesn’t happen. A Democratic president is usually feared by Wall Street so the market goes down until it figures out the president can not do much to impact the economy, disaster is averted and the market recovers. A pretty simplistic way to forecast the market and like most things simple, it works.

Only twice in modern history has the market gone down in both the first two years of a presidential term—the Great Depression years of 1929 and 1930 and the two first years of Nixon’s second term. Pretty wild times.

Could it happen again? Well, these are pretty wild times as well so who knows but history is against it.

Bargain Shopping

2009-05-04T11:51:47-07:00

I just read that 90% of the population believes the recession will last at least one year...or more. More importantly, 60% of people have begun to pay down debt, 68% have decided not to make a major purchase and 41% have begun to increase their savings.

On top of that housing prices have fallen three percent to thirty percent depending on where you live.

Add to that the fact that April vehicle sales numbers showed more sales of passenger cars than truck, SUV’s and vans sales—combined. This for the first time in twenty years. Toss on top of that the fact that four cylinder cars outsold six cylinder cars.

So what? Well, this all may be bad news especially if you bought a house six months ago or that Hummer is still in the garage. But it is good news if you have some cash or you are a young couple looking for a house or you need some furniture.

Opportunity knocks because it is a basic economic rule that when demand decreases, prices fall. Everybody knows that but most people will not act upon it. Why? Because it takes a lot of guts to buy when everybody is selling.

So let’s take a quick look at some moves that might look risky now but may pay off big. Take a truck. A fact of life is that trucks don’t get good mileage. Another fact of life is that if you need a truck, you need a truck. You can’t haul a horse trailer with a Prius. Well, you can but not far. And trucks traditionally carry a premium in Texas. But maybe not right now so now is a good time to buy because “If you are turning in a large SUV or pickup, be prepared for a shock when you go to the dealership” according to Edmunds.com, a leading online resource for automotive consumer information.

Risky? Maybe but this columnist puts his money where his mouth is. I bought a SUV. Why? Because we need one as our old one had in excess of 200,000 miles plus it was a good deal--like $5,500 less than they wanted for a similar model at a dealership. Bought it from a lady who just got a company car so she needed to unload this one. I bought it for the amount she needed to pay off the loan. Not a great deal for her but pretty good for us.

How about stocks? Pretty risky? Stocks are always ‘risky’ unless you look at the long-term track record. And people, out of fear, usually sell them as they go down, not as they go up. Warren Buffett noted that stocks are one thing that most people don’t buy when they go on sale. Buffett does which is why he is the richest man on the planet.

How about a house? Pretty risky as prices may go down even more. They may also go back up when the inventory level works itself out. Which it will. Seen much new construction lately? No, which means the supply and demand equation is working. Maybe it is a bit early right now to buy but never too early to start looking for bargains.

I wouldn’t advise people to go overboard on this stuff but bargains don’t come along all the time so keep your eyes open and put that cash to work.

Ten Traits of the Rich and Famous

2009-05-01T08:36:14-07:00

(Note: Not sure why this type is screwed up but I will try and fix it later. It is the thought that counts.)

Found a column by Jeffrey Strain of Street.com who stole the list from the authors of The Millionaire Next Door so I don’t feel too bad about stealing it from Jeffrey. First some original thoughts from me on the rich—most people think rich people get that way for a limited number of reasons such as inheriting it, inventing something like Bill Gates and Microsoft or getting lucky. Or stealing.

If you inherit money that is a fact but most people don’t. Also, most people that are rich don’t invent anything. Take Bill Gates. Bill Gates didn’t invent anything. He bought an operating system from IBM that IBM didn’t want and built it into Microsoft. As far as getting lucky, I haven’t met many lucky millionaires. I did meet one who owned a dairy farm that happened to be sitting on a couple of million barrels of oil but besides him, no.

Getting lucky? How do you turn luck into millions except by winning the lottery? You don’t. Gary Player, the world famous golfer, said, “The harder I work, the luckier I get.” Or maybe that was Jack Nicklaus but you get the point. Stealing? Works for some people but too high risk for me.

So what are the traits of famous people that don’t inherit it, invent it, or steal it?

Number 1-Patience. Like buying a three-year old car rather than a brand new one that depreciates as soon as you hit the highway.

Number 2-Satisfaction. People think ‘things’ will bring them satisfaction. And ‘things’ cost money. Thinking a $3,000 plasma TV will bring you satisfaction may work for you but not for me.

Number 3-Organization. Knowing where everything is and things getting paid on time can keep you out of a bunch of financial trouble.

Number 4-Discipline. Like paying yourself first by socking money into your retirement account before you hit the mall.

Number 5-Reflectiveness. My spell check says this isn’t even a word and I agree. I think they mean look before you leap like asking, “Do I really need this thing I’m about to buy?”

Number 6-Creativity. Doing things like thinking ahead and saving for emergencies or taking advantages of real bargains or adding a skill to make you more marketable to make you more money.

Number 7-Curiosity. Curious people investigate and explore. They aren’t planted on the couch every night. And the more you explore, the more you learn and the more you know, the richer you will get.

Number 8-Risk Taking. As in calculated risks. People that have all their money in CD’s and money markets are feeling pretty good right now but, in the longer run, they will be losing out on the historical 11% average return of the stock market.

Number 9-Goal Oriented. Ha, probably the most important trait of all. If you define a goal, you have to come up with a plan to get there and you have to work and work hard. But if you don’t, you drift. Drifting can be fun for a while but it too gets boring and certainly won’t make you rich. The terms Drifter and Millionaire are rarely heard in the same conversation.

Number 10-Hard and Smart Working. Somebody always has to put a damper on things. I don’t necessarily agree. I would put Smart Working way ahead of Hard Working. You can work hard and get nowhere. Or you can work smart and make a mint. I’ve noticed in building this house that the really good contractors work smart. Their product—painting, plumbing, electric, HVAC--isn’t any different than anybody else but the really good ones are organized, fast and efficient. Their crews do it once, they have the parts and they have the skills. Smart work will top hard work every time.

The problem with getting rich is that everybody (including every finance show on TV) thinks there is an easy way to do it. As with most things in life, there is not. But if you start out applying some of the ten traits you just might get surprised. It won’t happen over night but it will happen. As one star put, “Becoming an overnight success takes a lot of time.”

Bit and Pieces

2009-03-01T12:20:40-08:00

One interesting tidbit from Forbes magazine about credit card companies. (I think Forbes is the best business magazine around. They champion free enterprise but go after shifty practices…and they name names.

Seems the banks that brought us the sub-prime mess are trying to make up those losses by getting tough on credit card borrowers. Forbes put it this way, “Bank of America told thousands of its cardholders in recent weeks--even those with good payment histories--that they faced a rate hike from 9% to as high as 28% if they didn't pay off their balances at the old rate and stop using their cards. The bank, the largest credit card issuer, since its 2006 acquisition of MBNA, says it's all part of its "periodic" review of customer credit risk.”

You may think the key here is the rate hike from 9% to 28%. Actually the key is the “periodic review of customer credit risk.” I have known many bankers in my life and liked some of them so I won’t badmouth them. I’ll let Mark Twain do that. Mark said that a banker is someone who will give you his umbrella when it’s not raining.

Put another way--because the banks are losing their shirts the cry has come down from executive row to conduct credit reviews and whack anybody that is out of line. And it ain’t just Bank of America. Watch out for Chase and Citibank and everybody else. Make it go away by reading the fine print, avoid ‘deals’, and pay off the credit cards. If you don’t owe them anything, they can’t do anything to you.

On the investment front—There is a financial radio talk show host in this area that is beating his chest declaring he took his customers out of the market before the recent decline. Great, more power to him. But getting out of the market is only half the equation. The other half being when do you get back in? Nobody rings a bell. Timing the market is tough, if not flat out impossible. If you are still accumulating assets in your retirement accounts on a regular basis, stay in because you are picking up cheap shares when the market goes down. If you don’t like the market at all, get out and stay out. But remember that the market has averaged about an 11% gain per year versus 6% for bonds versus 3% for cash over the last 100 years--a pretty good track record.

Here is another reason for not cashing out of your IRA retirement accounts. If you are under the age of 59 and a half, you will pay ordinary income taxes on the money cashed out plus a 10% penalty. Ouch. Don’t cash out but do review your portfolio and adjust your asset allocation if not to your liking. Do this on a regular basis, like annually, not just when the market is a bit volatile.

Finally from an article in US News and World report on the five things to do to sell a house in a slow market—

Number 1-Make necessary repairs to the house. (Not exactly rocket science here.)

Number 2-Price to the current market. In other words, if the market is down, don’t expect to get what you might have gotten last year.

Number 3-Be flexible. Keep the house clean and be ready to get out of the house at a moment’s notice if a potential buyer wants to get in.

Number 4-Don’t ignore a low-ball offer. I would say don’t ignore any offer but be careful with the counteroffer.

Number 5-Know your agent.

Having sold a house last year, Number 5 is the most important. We interviewed three agents. Number One was a rookie that valued the house at $275,000. Number two was a 20-year veteran who valued it at $295,000. The third valued the house at $350,000 and we sold the house in five weeks for $342,500. The third realtor has been in the business for ten years and was the top producer in the county for five years. Winners are winners for a reason.

Do It Yourself Millionaires

2009-02-23T07:23:02-08:00

I have to admit I am a sucker for those home improvement shows where some good looking woman drops into a wreck of a house and renovates the thing in one thirty minute episode. Having renovated a few homes and done more than my share of “projects” I know nothing gets done in thirty minutes and nothing gets done right the first time. And the only good looking woman that helps me out is my wife. But I watch the shows anyway out of envy and do pick up a tip once in awhile.

I also look for financial DIY tips and Fidelity came up with ten regarding millionaires. Actually they are not tips but characteristics. Some I agree with and some I don’t. And they don’t relate only to millionaires, they relate to anybody that is making it or, more importantly, wants to make it. Here are the ones I agree with. If you want to see the other ones, call Fidelity.

First, the rich don’t think they are rich. Most act like the wolf is still at the door and shop accordingly. They do so because the vast majority came from middle class backgrounds. Watching your spending at all times is the key to financial success.

Secondly, they took risks and borrowed money to do so. I don’t dislike debt. I dislike what people do with it. I consider debt to be great for 1) buying a car to get to a job where you make money to pay off the car, 2) buying a house but a house you can afford to pay for out of your cash flow and 3) starting a business. If you can convince somebody to lend you money to start or buy a business, you probably have a pretty good shot at success.

Thirdly, rich people know how to work the tax system. Not through fraud but by owning their own business. Half the millionaires in this country own their own business. And they deduct everything because they are taking a lot of risk and the tax code rewards risk. See that cup of coffee you are drinking? Deductible, if you own your own business. And you can get the breaks even if you start out part time while keeping your day job. Of course, there are limits but that is why you hire a good tax accountant to keep you out of trouble.

Fourth, most successful people were B students. At best. Boy, was I glad to read that one.

Fifth, and most important, successful people are happier. Depression and mental illness for wealthy people is way below the norm. The same goes for physical health. Being broke is not good for your health and it is hard to have a bright outlook on life if you’re carrying around $30,000 worth of credit card debt at 25%. One analyst put it this way—“It’s the freedom that money buys.”

Or as Albert Einstein put it, “The lack of money is the root of all evil.”

It Can't Always Be Great--A Not So Good Article On Retiring Rich

2008-01-09T06:36:13-08:00

Pretty much the same old stuff from this article about retiring rich--your expenses will stay about the same in retirement, inflation eats away at your money, Medicare doesn't cover all medical expenses, and so on. But read it anyway, mainly for the last sentence.

Retire Rich: Learn From Someone Who Did

by Walter Updegrave/Money Magazine

When Henry "Bud" Hebeler was winding down his career at Boeing nearly 20 years ago, he was appalled at the advice he got from retirement planning software.

"The assumptions about returns, inflation, longevity and expenses were highly simplistic," says the 74-year-old Hebeler. With his engineering degrees from MIT and his experience - first as Boeing's chief forecaster and planner and later as president of Boeing Aerospace - Hebeler figured he could do better.

He has. His Web site, AnalyzeNow.com, is a compendium of advice and tools (mostly free) that can help you tackle topics ranging from how to create a retirement budget to whether to buy an annuity.

What distinguishes Hebeler from the typical retirement "expert" is that he combines a strong quantitative background with real-life retirement experience - his own and that of fellow retirees.

Hebeler took time out from his hectic schedule of skiing, golf, travel and running a site to share his thoughts.

Q. What's the most popular misconception about retirement planning?

A. That your spending will drop as you age and you become less active. My father played golf until he was 95. My wife and I are in our seventies and we ski the expert slopes at Park City, Utah.

My friends who have reduced their spending didn't do so because of lack of energy or physical ability. It doesn't take much effort to get into a taxi and go to the theater. They're cutting back because they know they're going to live longer than they thought they would. They spent too much too early and now they're worried about running out.

Q. So what can you do to assure that your money will last?

A. If you have enough savings to live on, consider delaying taking Social Security until full retirement age or even later. Holding off can be especially worthwhile if you have a spouse who didn't work or had a low income, since the higher payment you get by waiting can be passed on to your spouse when you die.

I also think retirees should consider putting some, but not all, of their money in an immediate annuity. Look at inflation-adjusted immediate annuities, since they provide a lifetime income that, like Social Security, goes up with inflation.

Q. How did your work at Boeing influence the advice you give?

A. It made me more conservative. In business you see how often things don't work out as you planned. Projects cost more to complete than you estimated.

The same is true of retirement, but retirement plans seldom call for setting aside reserves for unforeseen events. There are a lot of surprises, usually more bad ones than good.

Q. What kinds of surprises?

A. For one thing, your expenses are likely to be very different in retirement than during your career. Things that were probably covered by your company insurance - dental work, vision care, a variety of medical tests - typically aren't paid for by Medicare. My hearing aids alone cost $6,000, which wasn't covered at all.

People also don't anticipate the impact of inflation. In the first 10 years of my retirement, the purchasing power of my company pension declined by 30%. And then there are obligations people rarely plan for, such as having to help parents or adult children who are struggling financially.

Q. If you could advise people to do just one thing to improve their retirement prospects, what would it be?

A. People who aren't retired need to know how much to save. My father used to tell me that you should always save at least 10% of your income.

That's more like 15% to 20% today because you're less likely to have a pension.

Writing Off 2008 Already

2008-01-08T05:44:18-08:00

The new year has a rough start. Will it continue? Who knows but historically the beginning of the new year has little impact on what happens for the rest of the year as shown in the following article from Marketminder.com.

January Ineffect
1/7/2008

Story notes:

January’s rough start has many investors invoking the old saying, “So goes January, goes the year.
Statistically, this belief isn’t supported. History shows negative starts can be followed by positive years and vice versa.
Market volatility is normal, no matter when it happens, and doesn’t mean a prolonged downturn is at hand.

_________________________________________________________________________

January has commenced with gray weather, record snows, fierce storms, already broken New Year’s resolutions (stupid leftover pumpkin pie), and the usual post-holiday gloom—not to mention a continuance of December’s volatility. Most major market indexes are negative so far this year, leading many investors to invoke the old saw “so goes January, goes the year.” Already, we’re seeing stories highlighting the long and widely held belief that a rough start to January portends trouble ahead.

The Stress Is Just Beginning
By Tomoeh Murakami Tse, Washington Post
http://www.washingtonpost.com/wp-dyn/content/article/2008/01/05/AR2008010500149.html

This article states, “If the first three trading days of the year are any indication, 2008 is bound to test the nerves of even the most poised investors.” Fair enough—volatility always “tests nerves.” Except the first three trading days are never an indication of what’s ahead. Not ever. Three days of any month, no matter the calendrical significance, tell you nothing. Investors wouldn’t make a stock forecast based on the Ides of March—there’s nothing about any one day or group of days’ returns that tells you anything about what to expect looking forward.

Statistically, this is easy to disprove by checking historical data to see what happened each January and the annual results. Throughout history, negative starts to January have been followed by all sorts of combinations of positive and negative returns. Positive start, negative January, positive year. Negative start, positive January, negative year. On and on. Looking at the six worst first 10 days for the S&P 500, you see US stocks ended positively four of those times—one year up a big 42%! Another up 26%! What does that tell you? Nothing—beyond stocks are positive more than negative. And the third best start ever ended the year down 15%. Not so great.

Fundamentally, this makes even less sense. What do a few days in January tell us about investor demand for securities? Markets don’t obey a calendar. There’s nothing magical about January’s start suggesting markets must suddenly begin “behaving” themselves. Markets are volatile. They can be volatile in January, July, on Tuesday, the day after the Fourth of July—pretty much any time. Markets don’t have neat steps-and-stairs increases, and if they did, you wouldn’t be happy with the return you got. If you want that kind of steady appreciation, you’re going to have to be satisfied with what you can get by buying US Treasuries and holding them to maturity (i.e., not much).

We call the market “The Great Humiliator” (TGH for short) around here for a reason. Its sole purpose is to humiliate as many people as it can for as long as it can for as much money as it can. Scaring investors out of superior long-term returns with a bumpy start to the year is one way the market robs otherwise rational people of their senses.

We remain confident the world is altogether too dour. Don’t let TGH humiliate you out of the market with a bumpy start to the year—that’s just what that filthy trickster wants

How Much Is Enough To Retire? Finally Some Reasonable Answers

2008-01-07T06:00:08-08:00

When I see something I like, I steal it. Or at least borrow it. The financial world is full of worthless calculators. Here is something by Jon Clements of the Wall Street Journal that makes sense.

It's halftime. What's the score?

Today, I turn 45. (Don't feel bad; only my mother ever remembers.) By my reckoning, that puts me halfway through my working career and hence halfway to retirement.

How big a nest egg should a 45-year-old have? Here's a look at who faces a midlife financial crisis -- and who might be able to retire early.

Taking stock. Start with the accompanying table, which shows what percentage of pre-tax income you need to sock away over the next two decades, depending on how much you currently have saved.

Suppose you have a $240,000 portfolio, equal to three times your $80,000 annual income. To retire in comfort, you ought to save a manageable 12% of income every year for the next 20 years, calculates Charles Farrell, a financial adviser with Denver's Northstar Investment Advisors.

That savings rate -- which would include any employer contribution to your 401(k) -- will give you a retirement stash equal to 12 times income at age 65, or $960,000 in today's dollars. If you then use a 5% initial annual withdrawal rate, your savings will kick off $48,000, or 60% of your old salary. Add in Social Security and you might be hauling in a respectable 80% of pre-retirement income.

All this assumes you can clock an after-inflation investment return of five percentage points a year during the next two decades. To hit that target, keep a healthy sum in stocks and a tight lid on investment costs. (If you don't have precisely 20 years to retirement and want a sense of whether you're on track, try the retirement planner at www.dinkytown.com.)

Quitting early. What if you have savings of four or even five times income? As you can see from the table, amassing enough for retirement should be a breeze. In fact, if you have savings of five times income today and you never saved another dime, you would hit 12 times income at age 63.

But if you have already amassed a hefty nest egg at 45, you're probably a diligent saver, and you might look to retire early. Let's say you salt away 20% a year.

At that rate, if your portfolio today is equal to four times income, you will hit 12 times income at age 59, Mr. Farrell calculates. Similarly, if you currently have five times income saved, you should be set by age 56.

True, that means retiring before you're eligible for Social Security. But if you are a diligent saver used to living on a small portion of your income, that shouldn't be a big sacrifice.

Catching up. On the other hand, maybe you haven't been so thrifty. As the table indicates, the annual savings rate required to amass 12 times income by age 65 is 20% if you currently have two times income saved -- and a whopping 27% if your nest egg today is merely equal to your annual income.

Can't do it? Instead, you could scale back your retirement goals, delay retirement or both. Suppose you have savings equal to twice your income. If you sock away 12% of income per year, you could retire at age 69 with 12 times income.

Alternatively, you could call it quits with 10 times income at age 66. Again, imagine you earn $80,000 a year. If you retire with 10 times income, or $800,000, and use a 5% withdrawal rate, you will have $40,000 a year from your portfolio, equal to 50% of your old salary.

Meanwhile, if you have a nest egg of just one times income and you can't see cranking up your savings rate to 20% or more, you will likely have to curtail your spending fairly sharply in retirement, unless you work well past 65. For instance, to retire with 10 times income, you would need to salt away 12% of your pretax income every year until age 71.

One warning: All of the above presumes your income rises at the inflation rate between now and retirement. What if your income rises much faster? Ironically, that could make it tougher to retire.

"Let's say you get a big raise at age 50," Mr. Farrell says. "It's probably not feasible to replicate that lifestyle in retirement. The majority of that money should probably be committed to additional savings." If you do that, your nest egg will grow faster, and you won't have to throttle back your spending quite so much when you retire.

Copyrighted, Dow Jones & Company

Oil At $100 A Barrel--Maybe Not So Bad This Time

2008-01-04T06:42:08-08:00

I see no reason that oil is so expensive but it is. And that is a fact, for now. But, as screwed up as some people think the world is right now, it could be worse. It could be the 1970's when the whole engine fell off the track. Here is an article from the London Times that gives some insight as to why now is different.

Gerard Baker

It's human nature to imbue inert numbers with profound significance. We celebrate 18th birthdays and 25th anniversaries as though doing so might pause, even for a moment, the merciless ticking away of life's clock. We build buildings without 13th floors. In Asia they will go to extreme lengths to avoid any contact with the number 4. The Bible can be read like an extended number puzzle: twelve tribes, ten commandments, seven plagues, four horsemen.

In financial markets this tendency has fascinated economists. A certain number in an index or a price for a traded instrument is said to be “psychologically important”. It is believed that traders behave differently when they near or cross some round number - a $2 pound, 10,000 on the Dow Jones industrial average.

It seems implausible at first sight that hard-bitten capitalists would be victim to such unreason. Yet the idea that particular numbers matter persists in the minds of some people in the markets, which is enough to make it a kind of reality, I suppose. Sometimes, it seems, like an old horse that whinnies and retreats from some unseen spectral object, markets really do think a particular number might be haunted.

One of those magic numbers is $100 for a barrel of oil. On Wednesday, for the first time, contracts for future delivery on the New York Mercantile Exchange finally recorded that figure.

I beg to differ. There are good reasons not to fear $100 oil and even a case for mild celebration. That might not make much sense as you stand shivering this morning spending half a day's wages to fill up your petrol tank. And it might appear to sit oddly with our last experiment with rapidly rising oil prices - those halcyon economic days of the 1970s - but it's true.

The oil shock of the 1970s did help to bring the world that ugly pantomime horse called stagflation - stagnation with inflation. The quadrupling of prices in the 1970s to a price that, in inflation-adjusted terms, was just about the same as this week's was one of the primary factors behind the worst decade for the global economy since the Great Depression.

But while it's obviously true that today's higher oil prices represent both an inflationary risk and, at the same time, a recessionary one, as a kind of additional tax on our disposable income, there are lots of good reasons to think the effect this time should be much smaller than it was 30 years ago.

The first is that, back then, a sluggish global economy was hit hard by the deliberately restrictive policies of the oil-producing nations. It was, in the economist's jargon, a supply shock, as oil output was restrained by the producers from keeping pace with demand.

This time the principal reason for rising prices is less to do with supply than with demand. For all the talk of imminent global recession, 2007 was another bumper year. The continuing advance of China and emerging markets, solid growth in the US and a sprightly performance by those old laggards Europe and Japan meant that available oil production could not keep pace with demand. Now, of course, the rising price is the mechanism by which that demand will be restrained a little - but that is no reason to think a slump is on the cards.

The second big difference concerns the other end of the stagflation horse - inflation. A good reason for mild optimism today is simply that our policymakers have already lived through the experience of the 1970s and know what to do to avoid repeating it.

Back then, the oil shock came on top of a decade of steadily rising inflation, which nobody seemed to mind much. In the 1960s and early 1970s respectable economists thought there was a trade-off, that a bit more inflation was a price worth paying to keep growth going and unemployment down. So they “accommodated” the oil shock with easier monetary policy.

We learnt the hard way there is no such trade-off. If central banks accommodate higher oil prices with easier monetary policy, the almost immediate consequence will be rapid inflation, which will kill off growth.

Of course, today's economic climate poses threats. The continuing global credit crisis means that central banks might not be able to be as tough with rising inflation as they would like. But current easy monetary conditions are a temporary, emergency measure to tide us over this immediate crisis, not a permanent feature of the economic landscape.

The third good reason for suppressing our misery at $100 oil is that we are much less dependent on that baleful commodity than we were. Manufacturing - with a high energy-intensity - takes up barely half the share of our economies that it did in the 1960s. Thanks to improved production techniques and more efficient combustion engines, it has been estimated that today each unit of the West's economic output requires about a quarter of the energy input that it did 40 years ago.

Which leads us to the case for gentle euphoria at world record oil prices. A large part of the reason we are more energy efficient than we were 40 years ago is precisely because oil prices went so high in the 1970s, forcing us to use fuel more effectively.

Whether or not you believe that climate change is the world's biggest medium-term economic challenge and whether or not you believe that attempts to reduce our consumption of fossil fuels will make a bit of difference to it, you cannot seriously think that going on consuming oil at current rates is healthy.

Our continuing dependence on oil is wasteful, it messes up our environment, and it maintains our ruinous obligations to some of the most unpleasant regimes in the world - from Saudi Arabia to Venezuela via Russia and Iran.

If $100 doesn't wean us off the petroleum fix, perhaps we should start cheering for $200.

Hit It Where They Ain't

2007-12-19T06:55:53-08:00

The stock market likes to go against conventional wisdom. This article from Marketminder.com explains why the 'experts' are most often wrong in their predictions.

Groundhog Day 2008

12/18/2007

The close of each year stirs an instinctual phenomenon in the professional finance world. Like premature Punxsutawney Phils, investment institutions scramble forth from the warmth of their Bloomberg machines to forecast the climate of the upcoming calendar year.

This barrage of forecasts each year end is explained by behaviorism’s theory of order preference – an insistence on certain things in a certain order for little purpose other than societal convention. Why not forecast every 24 months instead of 12? Or each April instead of December?

In truth, a calendar year’s end means little to stocks. Markets go on—milestones like months and years are delineations of the mind and little more. But still, most investors engage in the prognostic ritual each December. In the next weeks you’ll hear many big-name gurus squawk (or should that be squeak?) their forecasts.

Of course, forecasting is a necessary thing for successful investing. If you don’t have some idea about where markets are headed, then beating the market is significantly tougher (if not near impossible.)

Most forecasters—even the gurus—fall wide of the mark. That’s because the factors driving most forecasts are usually derived from widely available information, are already broadly known, and therefore priced into the market. If there’s one thing we know is true, it’s that you have to know something others don’t to beat the market.

Still, paying close attention to what the gurus forecast is important. Why? Because a lot of folks look at them! So that means what they’re predicting becomes widely known—the antithesis of information that can beat the markets. So you’ve got to know what others are pricing in today to even have a shot at beating the market later.

As always, we advise critical thinking on these matters and to eschew herd behavior. After all, it’s been proven time and again that most stock market gurus with verifiable track records are wrong more than they’re right—making them about on par with good ol’ Punxsutawney Phil, who’s shadow detection technique of discerning spring’s arrival is right well less than 50% of the time.

How To Flub A Job Interview--Follow This Advice

2007-11-16T07:31:20-08:00

Personal finance columns drive me up a wall. Here is a doozy of bad advice. We'll take it point by point.

Five Ways to Flub a Job Interview

by Penelope Trunk

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Posted on Wednesday, November 7, 2007, 12:00AM

We spend so much of our careers doing good work, meeting interesting people, and learning new skills. But it really all starts with one moment: the interview.

Once you get there, you need to be able to package everything together for a nice, neat presentation that's memorable in exactly the right way.

Here are five mistakes a lot of people make -- even people who are great at doing interviews:

1. Not preparing for a phone interview.

Most hiring managers screen candidates on the phone before they bring the candidate in for an interview. This is to make sure there aren't any glaring problems.

A phone interview saves time. If you can't get the answers to basic questions right on the phone, there's no point in interviewers watching you botch those questions in person. Also, the hiring manager is looking for you to make a mistake that would rule you out. For example, not knowing that you shouldn't take a call with a screaming baby in the background.

So instead of thinking of the phone interview as a precursor to the real thing, think of it as something you can prepare for. Learn the rules.

MY INTERJECTION HERE--IF YOU DON'T PREPARE FOR AN INTERVIEW, THIS ARTICLE IS NOT GOING TO HELP YOU. YOU ARE ALREADY TOO STUPID TO GET A JOB.

2. Misunderstanding the point of a face-to-face interview.

Hiring managers today have a lot of tools at their disposal to figure out if you're qualified for a job. The Internet reveals your history, and often the content and quality of your work; LinkedIn can provide a plethora of references from people who have worked with you, whether you actually provide them to the employer yourself or not. And a phone screen can give a sense of your verbal abilities.

So what's left? Whether or not you click with them -- whether they like you. Remember that intangible thing that happens on a date when you decide if you like the person or not? The same thing happens with hiring.

This is what the face-to-face interview is all about. So make a great first impression, and focus on making sure the interviewer likes you.

SEE POINT 1. YOU DON'T KNOW THE POINT OF A FACE TO FACE INTERVIEW? IF YOU DON'T, DON'T WORRY, YOU ARE PROBABLY INCAPABLE OF FINDING THE OFFICE FOR THE INTERVIEW.

3. Neglecting talking points.

When President Bush walks into a press conference, he doesn't worry what journalists are going to ask him because he already has the answers he's going to provide -- no matter what the questions are. Such answers are called talking points.

Politicians want to frame an issue, so they listen to a question and then decide which of their talking points they'll use to answer that question. In this way, each question they're asked is an opportunity to get their own points across.

I once had a media trainer teach me how to stick to talking points, and it works for a wide range of situations -- including job interviews.

You control what five topics you want to discuss, so you should pick five things about yourself that you want to get across in an interview, and each point should come with some sort of story or example. You listen to each question and then figure out which point fits in well for a particular question.

You're not George W. Bush, though, so you can't totally ignore questions that don't have pat answers. But you'd be surprised how often you can answer an interview question with one of the five answers about yourself that you've prepared. This is a way to control an interview and make sure the focus is on your strengths.

A great resource for helping you understand how to frame your answer for any question is the "The Complete Q & A Job Interview Book" by Jeffrey Allen.

YOU CONTROL THE INTERVIEW? SORRY, NOT TRUE. SURE THERE ARE SOME POINTS YOU WANT TO GET ACROSS BUT IF YOU START TAKING OVER THE STAGE, YOU ARE GOING TO LOSE. THE MAIN PURPOSE OF AN INTERVIEW FOR THE HIRING MANAGER IS TO SEE IF THIS PERSON IS GOING TO FIT IN. BE YOURSELF. IF THEY DON'T LIKE YOU, TOO BAD. IF THEY DON'T YOU ARE PROBABLY BETTER OFF NOT WORKING THERE ANYWAY.

4. Thinking the job description is set in stone.

When you start an interview, find out what you're interviewing for. Typically, the person who writes and publishes a job description is not the person making the hiring decision. Ask the hiring manager what the goals are for the position, and ask who the new hire will work most closely with so you know who'll have the biggest say in whether or not you get hired.

And, if you get the job, remember that it could change all over again. Immediately. So don't ever assume you know what your job is until you investigate. The only constant about your job description is that you must be invaluable to your boss in order to succeed.

DOES THIS PERSON UNDERSTAND ANYTHING ABOUT CORPORATIONS? I DON'T THINK SO. THE PERSON DOING THE HIRING PROBABLY DID WRITE THE JOB DESCRIPTION OR GIVE THE INPUT TO HR SO THEY CAN PUT IT INTO THEIR PET FORMAT, SO PAY ATTENTION TO WHAT THE HIRING MANAGER IS SAYING. THE ONLY THING THAT MAKES ANY SENSE IN THIS ARTICLE--BE INVALUABLE TO YOUR BOSS!

5. Failing to close.

A job interview is a sales call, and all good salespeople know that you don't have a deal until you close it. An almost-deal is not a deal, in the same way that a good interview is not a job.

So toward the end of the interview, if you think things are going well, say, "Do you have any reservations about hiring me?" Most hiring managers will answer this question truthfully, and it'll give you a chance to assuage their fears.

This is a hard question to ask, because you'll be faced with your weaknesses right there in the midst of the interview. But if you don't take the time to explain how you'll overcome those weaknesses it won't come up, and you're much less likely to get the job.

THIS IS SO DUMB--DO YOU HAVE ANY RESERVATIONS ABOUT HIRING ME? WHY, SHOULD I? IF SOMEBODY ASKED ME THAT QUESTION, I WOULD ASK FOR PSYCHOLOGICAL TESTING. IF YOU ARE INTERESTED IN THE JOB, SAY SO AND THEN TELL THEM WHY YOU CAN DO IT. JEEZ, THIS IS SO STUPID.

SORRY BUT THIS KIND OF STUFF WILL KEEP YOU UNEMPLOYED FOR A LONG, LONG TIME.

Need Job Fulfillment? Read this--

2007-11-14T06:31:08-08:00

I love Ben Stein. Really like the first part of this, not too crazy about the middle part and back on track for the last part. Go, Ben, go.

Arm Yourself for Job Fulfillment and Retirement Bliss

by Ben Stein

Now for some decidedly non-PC thoughts.

I hear a lot of bragging from my pals about how their daughter got into Brown or their son is being courted by Goldman Sachs or their grandchild just got into a fancy prep school.

Worth Bragging About

What I never hear is bragging from parents who say, "My son just got into the Army Special Forces and is risking his life to keep your son and you alive." I never hear parents saying that their kids got into the 82nd Airborne and are now fighting in Afghanistan to give people there a decent life and keep Al-Qaeda tied down so they don't come here to attack us.

Now, you may say, "All well and good, and it's great that these military families are so modest. But what does this have to do with me?"

It has everything to do with you, my friend.

Why It Matters

First, the military people on the ground -- and those in the ground in Section 60 of Arlington National Cemetery -- are the ones who keep your family alive. They're the ones who comprise the wall around America so that we can play and make money for our retirement and enjoy our children. They, whether in training or in traction, are the ones who keep America humming and keep the noblest dream of freedom alive in our hearts.

Again, you may say, "I agree and honor them, but what does this have to do with a column about money, careers, and finance?" Again, everything.

Day after day I get letters from readers who complain about their jobs and their lives. They have dead-end careers. They have bosses who disrespect them. They have colleagues who are strangers. I know that world. I've been in it.

Real Job Satisfaction

But I also get letters aplenty from men and women in the military. They love their jobs. They do exciting work. Dangerous, of course, but exciting. They have immense responsibilities. They get challenged on a scale they would never have dreamed conceivable. They bring more out of themselves than they knew they had.

Yes, they don't get paid as much as they should. But their pay isn't terrible, and they get extraordinary benefits. More than that, they wake up each morning feeling that they matter. They never have to worry if they're making a difference in the world, because they know there would be no civilized world without them. Their colleagues on the battlefield not only treat them with respect, they would give up their lives for them. They have each other's backs in the real sense of the phrase. (Please, someone at a Wall Street firm, tell me if your colleagues feel the same way about you.)

In short, dear reader, you might want to consider a career in the military. The world needs you, and it just might make you feel like you're doing something very worthwhile with your life.

Light at the End of the Tunnel

Second, I want you to think about retirement in a serious, truthful way. This will tell you that while you're going to be fairly vigorous and sprightly for the first part of your golden years, you possibly won't be for all of them. You'll get a bit weak, often more than a bit confused, and generally not totally "there" for your duties and responsibilities.

This is one of the many reasons I love and recommend variable annuities, which you then convert into a lifetime annuity. Once you've set the annuity on autopilot and start adding to it (always with an eye on fees), it compounds month after month free from tax.

True, when you start withdrawing from it, you have to pay income tax on the amount of gains in the account. But for most Americans, that rate is now extremely low. And you get that check from the insurance company or financial house as regularly as clockwork. It mounts up and up during your contributing years, and then you get the money through the mail.

You don't have to study the market. You don't have to worry about ups and downs. The money just comes in every month or every quarter and you live on it. And it's guaranteed to be there until you die, or for some specified number of years thereafter.

Old age, especially the part of old age that involves loss of powers, is frightening enough for anyone. Old age that involves fear of financial insecurity is truly horrifying. Annuities are a safe, easily accessible, low-cost (if you keep an eye on fees) way out of that desolate valley. Keep them in mind, even if others mock them. They work.

Hardly Working

Finally, I have a correspondent who endlessly asks me if I know ways to get rich that don't involve much work so she won't miss her pedicures. She also wants to work only with nice people who are also smart.

I hate to break this to her and to everyone in her situation, but there's no such job. Making money takes hard work. The people who do it well make it look easy, but it isn't. It's hard work. Get used to it. And the people you work with aren't always nice, either.

There's no royal road to quick wealth. Hard work and disciplined, sensible savings will get you there. Not pedicures.

Taxes--Higher In The Future?

2007-11-13T08:16:17-08:00

Not sure I buy all this but an interesting article on politics and taxes (or tax increases) as a result of the election cycle.

THE BASIC RULE REMAINS--BE IN THE MARKET OVER TIME AND YOU WILL GET RICH.

A Capital Gainsay

11/12/2007

Story Highlights

Media headlines are already warning of higher tax rates after the 2008 elections.
It’s far too early to know what the outcome of the elections will be, or what the incoming administration’s agenda will be.
There’s currently little benefit to trying to maneuver around potentially higher capital gains rates.

________________________________________________________

Though our political pals have already been campaigning for, seemingly, an eternity, we’re now entering the official campaign season. Hoorah! And the most popular agenda item, after ensuring the survival of blood-thirsty, man-eating Arctic carnivores, seems to be whether to extend or end the “Bush tax cuts.”

The market doesn’t care if the president’s Democrat or Republican, and we don’t either. At MarketMinder, we’re vigorously politically agnostic, preferring no political action to any political agenda—left, right, or center. But should the Dems sweep the White House and Congress in 2009, are tax hikes guaranteed? And does that mean you should sell now to take advantage of today’s lower capital gains rates? No and no.

First, the Dems are by no means guaranteed the White House. It’s way too early to handicap the race. Recall Howard Dean seemed unstoppable before his barbaric yawp in Iowa. A million things could happen between now and November ‘08. Governors Romney or Richardson could make a surge. A major candidate could drop out of the race. Senator McCain could seize the lead from Mayor Giuliani, switch parties, and convince Stephen Colbert to be his running mate. Senator Obama could be discovered to have been Hillary Clinton’s commodities broker! Voters could realize Hillary Clinton is Hillary Clinton!

If that provides no comfort, consider this: Would it shock you if the next president is a Democrat, and would it shock you if he or she raised the capital gains rate? Did you answer “no” to both? The next president won’t take office for 13 months, yet we’re already seeing headlines like these:

Wall Street Braces for Higher Tax Rates
By Jeanne Sahadi, CNNMoney.com
http://money.cnn.com/2007/11/07/pf/taxes/investment_rate_change_effect/index.htm?postversion=2007110815

The market doesn’t move on what’s widely expected—it moves on economic fundamentals that are unexpected. By the time President Whoever enacts their stupid tax agenda, the market will have had a very long time to price in the ill effects. That doesn’t mean we think tax hikes are no big deal—it means you needn’t worry about what pretty much everyone is already worried about. There’s not much market moving power in the wholly expected.

But let’s suppose you know exactly who’ll win and exactly what’s in their black little heart—raising the capital gains rates to 25%. Or higher! What can you do with that information?

Some might say, “Sell! Sell! Sell!” to take advantage of today’s lower capital gains rate. Fine . . . then what? Sit with your proceeds in cash? Even assuming a tax hike, equities have a far superior long-term average than bonds or cash. Selling now to avoid a higher rate later isn’t cutting off your nose to spite your face—it’s full frontal lobotomy!

Another straw man might say, “Well, I’ll sell now to pay the lower rate, then reinvest. That’d be smart, right?” Nope—if you assume stocks generally rise over time (as we do), the best place for your dough usually is in stocks. Trying to time the market, no matter what your reason, is fraught with peril.

Plus, it’s not guaranteed you’d be better off by gaming the lower rate now. The magic of compounding means it’s generally better to leave money working in the market for as long as possible. Why pay taxes now if you don’t have to? Yes, your rate might be higher later, but it’s a higher rate on conceivably a much bigger pool of assets—meaning if you give the market time, you can still end up with more, net-of-taxes, than if you do a tax hokey-pokey now. Isn’t the goal to end up with more money? We’re not fond of handing our money to the government either, but we wouldn’t purposely deprive ourselves of greater returns just to make a point. We’re principled, but we’re not crazy.

We can’t know how the elections will turn out, and there’s no telling what the incoming administration’s tax policy will be. Anything can happen—we can even envision a situation where a Democratic sweep of both Congress and the White House still wouldn’t yield higher taxes! Given those uncertainties, and the undeniable benefit of compounding interest, the best course of action is to deny the government tax revenue today in return for the likelihood of greater returns for yourself in the future. It’s the American way.

UFOs? NO, ETFs

2007-10-30T07:02:49-07:00

Well, leave tomorrow for six days in a U-Haul so I have lots to do to get ready. Not a lot of time for this stuff but if you want to learn up on ETFs go for it. Me, I would just read category 12 and do that. Easy for me to say, I wrote it. Category 12 I mean, not the following which came from MarketMinder.com.

THE ADVISOR'S CORNER

Exchange Traded Funds

8/30/2007 |

The Advisor’s Corner tackles a common situation or issue facing financial advisors and their clients.

Over the past decade, exchange traded funds (ETFs) have exploded in popularity. Originally designed to track a broad market index at a relatively low cost, ETFs now come in all shapes, sizes, and levels of specificity. Most every segment of the market now has an ETF to track it. In this column, we’ll take a closer look at exchange traded funds and discuss ways these tools can be useful in building a diversified portfolio.

Client: What’s an exchange traded fund? Who were they created for?

Advisor: Exchange traded funds, or ETFs, are securities tracking a specified index or basket of assets in a fashion similar to an index fund. However, unlike an index fund, an ETF trades like a stock on a major exchange and the price fluctuates throughout the day. ETFs were originally designed to provide investors with a relatively low-cost method of investing in a particular index or segment of the market. ETFs provide instant diversification and allow investors to sell the index short, buy on margin, and purchase a smaller number of shares. (Most index funds have a minimum buy-in.)

Over the past several years, ETFs have gained in popularity with investors who believe there is no value to trying to outperform a market index or benchmark. ETFs allow investors to essentially perform like the market at a lower cost relative to most other actively managed mutual funds.

Client: That approach sounds pretty appealing. What are the drawbacks?

Advisor: On the surface, it seems an appealing alternative to other investing techniques. If you can spend minimal time achieving market-like returns, what’s not to like? But, like almost everything market-related, it’s not that easy.

Many “indexers” purchase ETFs planning to just let them “do what they do” over the next twenty years. Unfortunately, though this is a noble goal, you see very few able to stick to it. Why? Part of the reason most investors underperform the market is their (very natural and understandable) propensity to allow emotions to overwhelm objectivity. Many investors become spooked by even small short-term losses in their portfolio. It can be difficult to recognize short-term losses are likely temporary in the bigger picture. When market indices and the funds tracking them have double-digit declines, many investors panic and fail to stay the course. That panic can lead investors to sell out at the wrong time—making it likely they miss the opportunity for the positive returns they seek.

Really, buying a fund for the long-term and actually sticking with it are two totally separate things.

Client: Is there a better way to use ETFs?

Advisor: In my opinion, yes. There are certain instances when utilizing ETFs to gain exposure to narrow sectors of the market makes sense, from a transaction cost and diversification standpoint. For example, if I want an approximately 3% portfolio weight in Japanese stocks, I can more cost-effectively gain exposure and diversification with an ETF.

But if I purchased individual positions instead, I would have a few challenges. First, I would have to purchase multiple individual stocks, maybe 10 or more, to properly diversify in that narrow category. However, allocating only 3% of my portfolio to 10 or more positions can lead to big transaction costs. Since most brokerages charge minimum commissions for trades, buying 5 or 10 shares of a stock becomes much more expensive relatively than buying 100 or more shares. Second, even with 10 or so positions, I still wouldn’t have achieved the diversification available with a single ETF that might track several hundred positions.

Client: So, why create a portfolio using anything but ETFs?

Advisor: First, even though it is not nearly as important as proper asset and sub-asset allocation, stock picking can still add value to your portfolio’s return. Studies have shown nearly 10% of a portfolio’s return is attributable to stock selection. If you have the time and ability to pick good stocks, you can likely add return.

Second, if you build an ETF-only portfolio, you still have many decisions to make. Do you use only broad index ETFs? Or do you use sector, country or size-specific ETFs? How much do you put in each one? When do you rebalance? How do you ensure the underlying positions in each fund don’t overlap? Essentially, using ETFs this way requires active management—something an ETF user may be trying to avoid. Part of the ETF allure is their passive attributes and there’s nothing passive about this type of approach.

How To Make A Million--The Easy Way

2007-10-29T06:52:51-07:00

Stealing articles again because I have a lot to do--1,500 miles to go in a UHaul takes your mind off money. And you should take your mind off money too by making investing a habit, not a gamble. See below--pretty dry but makes a lot of sense. An article called Taking A Gamble On Ignorance by Kebin Bailey, an Aussie.

A FRIEND of mine recently told me with great confidence that investing in shares was gambling.

I took offence and assured him that if you use a scientific approach you can wash out most of the speculative risk and be left with ownership of good quality businesses that produce good earnings year after year.

His opinion about the market is not unique -- and is borne out of an ignorance of the evidence that backs up sound portfolio theory.

He has only experienced the hype of stock tips and timing calls of when to get in and when to get out of the market. In a word, his only experience of shares was speculating.

Empirical research has shown that stock selection and market timing techniques contribute virtually nothing to the total return of a broadly based investment portfolio over time and in many cases detract from the overall portfolio performance.

Research conducted by Brinson, Hood and Beebower in several well documented studies showed that over 94 per cent of the long-term return of broadly based investment portfolios were attributable to the asset allocation decision.

Only the remaining 6 per cent was attributable to stock picking and market timing.

However, stock picking and market timing (sometimes called tactical asset allocation) are the very areas that generate the bulk of the revenue for the investment industry.

Many shareholders have failed to match the market return, despite taking far greater concentration risk by picking a relatively small number of shares that they think will be winners.

They tend to blame their broker for poor stock selection without realising the futility of the exercise in the first place.

Most of us rarely compare the total performance of our portfolio relative to the market as a whole and we are often unaware of our poor relative performance.

Some of us are like the gambler who only remembers the wins at the track but conveniently forgets the losers. During a rising or "bull" market when a "rising tide lifts all ships", share clubs spring up and there is a sense that investment is easy and fun.

Interest begins to flag when losses start to accumulate during a prolonged downturn. Nothing substantial is learned about the nature of investment markets and a belief is usually formed that share investment is speculative and dangerous.

The famous author Benjamin Graham used a precise formula to differentiate between investment and speculation. His description has stood the test of time.

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."

Often, the unsuspecting public is led into purchases that they think are investments when they are in effect, speculations.

The evidence of how to achieve better results is available but ignored by the majority of participants in the advice industry for commercial reasons.

Prior to the advent of the computer, work was already being done on the efficiency of markets.

Some of this research dates back to the work of French mathematician Louis Bachelier, who presented his dissertation in 1900 on "The Theory of Speculation" for his degree of Doctor of Mathematical Sciences at the Sorbonne in Paris.

In this paper he stated that "the mathematical expectation of the speculator is zero." He described this condition as a "fair game".

Bachelier arrived at his conclusion because "it seems that the market, the aggregate of speculators, at a given instant can believe in neither a market rise nor a market fall, since, for each quoted price, there are as many buyers as sellers."

The logic is irrefutable: "Clearly, the price considered most likely by the market is the true current price: if the market judged otherwise, it would quote not this price, but another price higher or lower."

Over time, of course, prices will move in either direction, when the market as a group changes its mind about "what the price considered most likely" is going to be.

My friend who thought investing was about second guessing the market should read Bachelier. He should ignore short term fluctuations, diversify as broadly as possible and focus on the long-term dividend producing potential of every purchase.

And you should read Category 12--All You Need To Know

Death Of A Salesman

2007-10-26T09:09:06-07:00

Why go to the work of thinking up stuff when you can steal it? Did I say steal it? Sorry, borrow it.

The job of salesman (salesperson?) has always fascinated me because I'm not very good at it. Wish I was because it is a job you can take anywhere. I was in international finance and the smart money said you had to live in New York, London, or at worst, Chicago to make a living. I proved that wrong but the career category is not very portable.

Sales is. If you're good you can live anywhere. The guy building the million dollar house next to ours is a salesman for IBM working out of his house. And he builds houses in his spare time. What a life.

So think about it but read this by Ben Stein first.

Ten Ways to Blow a Sale

by Ben Stein

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Posted on Friday, October 12, 2007, 12:00AM

In 1900, the most common job in the United States was farm laborer. That was backbreaking, dangerous work. Now the most commonly occurring job is salesperson.

That's not as difficult. Usually, such jobs are performed in air conditioned settings. The most painful parts of it are dealing with rude customers and having to stand for long hours.

It's Yours to Lose

There are all kinds of sales jobs, of course, from selling gum and cigarettes at convenience stores to selling giant office buildings, airplanes, or immense blocks of stocks or bonds. Or even selling entire companies.

But whether you're a salesperson at 7-Eleven or Goldman Sachs, you've probably heard and read advice on how to make a sale. I'd like to change gears and come at it from another angle. As a companion piece to my column from last year, "The Art of (Killing) the Deal," how about some further advice on how to lose a sale?

The Terrible Ten

If you find yourself doing the following acts or omissions on a regular basis, you might want to reconsider your steps:

1. Don't listen to your customer. Instead, only tell him or her what you feel like saying.

Don't hear what's important to the customer about a house or a car or a pair of shoes or an investment. Only talk about what's interesting and important to you.

2. Show disrespect to your customers. After all, you never know if the guy is serious or not. So make fun of him and belittle him until -- and maybe even after -- you actually see the color of his money.

Don't hesitate to be sarcastic and mock or criticize his choices and opinions. After all, it's your store, your dealership, your brokerage. You're the expert, not him or her. Besides, customers like being taken down a few pegs. They don't want to just be sucked up to -- they want to be treated badly. It makes them much more likely to buy.

3. Don't be accommodating on big purchases. If you're selling something as expensive as a home or large boat or resort condo, and if the buyers have any hesitation because of unsettled market conditions, don't cut them any slack. Just show them the standard contract, and make it as one-sided as you can.

Make sure you tell them it's your way or the highway. Yes, it might be a million-dollar sale, and maybe you haven't had any other customers in a few weeks (or months). But still be totally unbending about your terms even if what the buyer wants doesn't really cost you much money.

You have to show that ratty little buyer who's boss. Flexibility is for losers, and you're not a loser.

4. Put your personal life ahead of your customers. Get right off the phone with your clients if your girlfriend calls. If you have a manicure and pedicure appointment, do that before you even consider staying a minute late to get the sale closed.

After all, there are always more clients coming through the door -- your nails are sacred. You have to respect yourself and not become a slave to your job.

5. Don't know your product. If your customer asks about your product, the best answer is "whatever," preferably said in the most dismissive tone possible.

If you don't know something your client asks about, tell him it's not important and that if he really wants to find out about it, he should look it up online. You have other things to do, like that manicure and pedicure.

6. Don't bother closing the deal. Or rather, make it really hard for the customer to close the sale.

Don't have the paperwork ready. Gossip with the finance manager instead of getting your papers ready. Forget to fill out parts of the contracts. Then tell the buyer he'll have to cool his heels while you get it done -- and then just leave and make him wait until tomorrow! It'll teach the customer a much-needed lesson in humility.

7. Lie to your customers about the product. Tell them it's safer, or more reliable, or guaranteed for longer than it is.

After all, they'll never catch on. And if they do, there'll be plenty more customers coming. Besides, you'll be gone and in another state by the time they catch on. If they sue, that's your boss' problem, not yours. Little lies help you, and they don't really hurt anyone.

8. Look like a total slob. Have bad breath. Don't wear clean clothes. You're a poet, an artist -- you don't have to look like you're someone's butler or maid.

You can look any old way you want and smell any way you want. Your charming personality will come through anyway. If it doesn't, tough. There are 300 million people in this country, and any one of them is a customer. So worry about the next one, not this one.

9. Don't bother to close the deal. Just explain a little bit, then walk away and let the customer stew. Don't come back to him -- let him come crawling to you.

Don't explain things, then ask how he wants to pay for it and any other question that will lead to closing.

10. If you're selling big-ticket items, don't bother to qualify your customers.

Don't find out if they can actually afford that plane or that car or that home. Just do your standard pitch and assume the guy or gal in front of you has the money to do the deal. That really works beautifully. Then, if they don't qualify, yell at them for being deadbeats.

Salesman, Heal Thyself

Oh, there are a lot more. But if you find yourself doing any of these little things, pause, take a few steps back, and ask yourself, "Do I really want to sell this thing?" If the answer is yes, then take a step back and start again with selling in mind.

(I'm greatly indebted to my master-salesman pal and fellow author Barron Thomas for many of these tips.)

Quick Political Fixes That Don't Work

2007-10-25T09:26:40-07:00

Going to post another article that is pretty good but pretty boring but has a lot of meaning so read it. I'm too busy right now to do it all myself since I just added a possible lawsuit in Florida over my late uncle's estate. Just gets better and better.

But I realized when I saw this article at MarketMinder.com (full disclosure--I do business with these guys) that none of you have ever seen or been under price controls. Hope you never do because they don't work, ever. Read on.

The high cost of cheap food

Published: October 24 2007 20:37 | Last updated: October 24 2007 20:37

In 1973 Richard Nixon, US president, under political pressure because of rising domestic food prices, banned the export of soyabeans. The policy had predictably dire results, but today, with the world in the grip of another bout of food price inflation, governments worldwide are rushing to distort the market with subsidies and quotas, price controls and export taxes. They should stop.

In the run-up to its presidential election, Russia has imposed price controls on basic foodstuffs, and plans an export tariff on wheat. China already controls prices; other importers, including Egypt, Jordan, Bangladesh and Morocco, are increasing subsidies or fiddling with their tariff regimes.

The simple problem with all these actions is that they distort the market. Price controls and export tariffs make production less profitable, which discourages increased supply and can make shortages worse. Subsidies stimulate demand so it does not fall into line with higher prices. All distort the terms of trade within a country. Farmers suffer at the expense of city dwellers – especially perverse in countries with high rural poverty, such as China.

None of this is too bad in the short term. If food prices fall back, price controls become meaningless, subsidies can be withdrawn and export tariffs no longer make sense. The more pernicious problems will appear if food prices stay high. With more demand for protein from fast-growing Asian middle classes, lunatic policies to subsidise corn-based ethanol and the legacy of underinvestment during long years of low prices, that prospect seems likely.

For exporters, distorting the market in favour of domestic consumers harms the balance of payments, lowers investment and helps rivals. Nixon’s ban is often credited with creating Brazil’s soyabean industry.

For net food importers, who can keep prices down without shortages only by offering subsides, the risks are much more serious. Cheap food is an open-ended fiscal commitment – once in place it is politically impossible to withdraw – that can play havoc with a budget. Developing countries have improved their fiscal position in recent years. They should not throw that away.

Rich countries, where food is a small part of total consumption, have less to worry about, although they should beware the ratchet effect as food importers increase subsidies and food producers tax exports, driving up world market prices still further. But leaders in the developing world, no matter the political pressure to bring down the cost of grain, should resist. Cheap food comes at a high price.

Deliver Us From Human Resources

2007-10-24T09:07:01-07:00

Somebody over at Tower Perrin doesn't have enough to do as evidenced by this 'study.' I struggled through it but not sure I can draw any conclusions except that Mexican companies have the greatest percentage of 'engaged' employees. From what I saw in Mexico they are engaged because they just feel damn lucky just to have a job.

Interesting remarks about Japan as well. Well, interesting if you are in Human Resources.

On the 'road to engagement?' What is that?

Read on and figure out your own conclusion. Please share any insight because I'm not sure I get this. Or even want to.

Few workers are 'engaged' at work and most want more from execs
Sunday October 21, 10:28 am ET
By Andrea Coombes

Just 1 in 5 workers are 'engaged' -- and most want more from executives

SAN FRANCISCO (MarketWatch) -- Only 21% of workers worldwide are "engaged" -- that's human-resource-speak for ready to expend some extra effort at work -- while 38% are either disenchanted or disengaged, according to a new survey.

Engagement is not satisfaction or happiness, but the degree to which workers connect to the company emotionally, are aware of what they need to do to add value and are willing to take that action, said Julie Gebauer, a managing director with consulting firm Towers Perrin, which surveyed almost 90,000 workers in 19 countries.

"Happy employees don't necessarily create better financial results, but there is a definite link between engagement and a company's financial performance," Gebauer said.

The survey found 21% of workers worldwide are engaged, and another 41% are "enrolled," which means they're on the road to engagement, Gebauer said.

More than 80% of the engaged employees say they contribute to the quality of company products, services and customer satisfaction, while only 40% of disengaged workers agree.

Engagement helps retention too: About 50% of engaged employees say they have no plans to leave their company versus 15% of the disengaged.

'Dollars-and-cents issue'

The fact that almost 80% of workers are less-than-engaged is likely costing companies money, Gebauer said.

"The notion of engagement is really a dollars-and-cents issue. Organizations that have employees that are highly engaged deliver better financial results than those that don't," Gebauer said.

In a separate study, Towers Perrin assessed data on 40 global companies over a three-year period, measuring employee engagement at a certain point and then looking at the companies' financial results over the ensuing three years.

Companies with highly motivated workers enjoyed a 3.7% increase in operating margins and a 2% rise in net profits, while companies with a lower level of worker commitment saw both measures decrease slightly.

Countries vary widely

The portion of engaged workers varies widely by country, according to the survey.

In the U.S., 29% of workers are engaged and 28% are disenchanted or disengaged, while in Mexico, 54% of workers are engaged -- the highest among the 19 countries surveyed -- while 16% are disenchanted or disengaged.

The lowest portion of engaged workers on the list is Japan, where 3% of workers are engaged and 72% are disenchanted or disengaged.

Still, other reports find higher levels of worker commitment among U.S. workers, at least. A separate survey finds that 72% of workers would recommend their company as a good place to work, up from 62% two years ago, and 64% say their company values them as employees, according to a survey of 2,000 U.S. workers in September by Rasmussen Reports LLC, a research firm, for Hudson, a staffing and recruitment firm.

From the Towers Perrin report, here's the full list of engagement levels by country:

Region	Engaged	Enrolled	Disenchanted	Disengaged
Global	21%	41%	30%	8%
Mexico	54%	30%	13%	3%
Brazil	37%	38%	22%	3%
India	36%	46%	15%	3%
U.S.	29%	43%	22%	6%
Switzerland	23%	50%	23%	4%
Canada	23%	44%	25%	7%
Spain	19%	35%	31%	15%
Russia	18%	46%	30%	7%
Germany	17%	47%	28%	8%
China	16%	51%	27%	6%
U.K.	14%	42%	33%	11%
Belgium	13%	47%	31%	9%
Netherlands	13%	47%	32%	7%
France	12%	41%	35%	12%
Italy	11%	40%	36%	13%
Poland	9%	37%	39%	15%
Korea	8%	45%	40%	7%
Hong Kong	5%	36%	46%	13%
Japan	3%	25%	56%	16%

Engage me

So, what makes for an engaged employee? It's not necessarily pay. While the level of pay is important, it's not among the top 10 drivers of engagement, Gebauer said.

Rather than using "the blunt instrument of pay," Gebauer said, companies should survey their work force, much as they might study their customers, to assess what employees are seeking.

The top 10 drivers of employee engagement across all 19 countries are a mixed bag that includes both the behavior and actions of senior management and individuals' own actions and abilities:

Senior management sincerely interested in employee well-being
Improved my skills and capabilities over the last year
Organization's reputation for social responsibility
Input into decision-making in my department
Organization quickly resolves customer concerns
Set high personal standards
Have excellent career advancement opportunities
Enjoy challenging work assignments that broaden skills
Good relationship with supervisor
Organization encourages innovative thinking

Many employees "are looking for a greater demonstration of senior management's interest in their day-to-day work," Gebauer said.

"What employees are looking for is open communication, communication that reflects the fact that senior management really understands how the work gets done, and recognizes and appreciates that," she said.

Senior management's interest in employees can be expressed in a number of ways, Gebauer said, "including organizations' willingness to help employees balance work and activities outside of work, to sponsor competitive benefit programs, to focus on career development and training," she said.

"Those are things that will translate to employees as senior management being interested in my well-being," she said.

Communication helps, too, even the electronic kind. "CEOs who will provide a monthly Web cast or a voicemail just letting people know about key developments in the industry and in the company -- those are some of the things that help employees put at least a voice and a face to senior management," she said.

The study's findings refute other studies that find workers' immediate supervisors are most important to employees' sense of well-being.

"It's not to say the manager isn't important, but imagine the best manager in the world working in an organization that doesn't have a good performance-management system, doesn't have good advancement opportunities," Gebauer said.

"How is that manger going to help the employee navigate through an organization that is actually not working so well?"

Beats the hell out of me.

Getting To A Million Bucks

2007-10-23T08:20:43-07:00

Most people don't get rich because they refuse to start small. Why bother? Just win the lottery. I can't believe people buy lottery tickets but they do. And the ones I see doing so don't look very smart. And they aren't.

The way to get there is simple, well, kind of. Save two times your annual salary and let the power of compound interest take over. Einstein said that compound interest was the eighth wonder of the world and most people think Einstein was, well, an Einstein.

Jonathan Clements gives the details in the following---

How to Save $1 Million for Retirement

The Wall Street Journal Online
By Jonathan Clements

If you're a newly minted college graduate, the $1 million-plus needed for retirement might seem impossibly large.

Feeling discouraged? Try lowering your sights, aiming instead to accumulate savings equal to two times your annual income.

Once you hit that milestone, the financial wind will be at your back -- and reaching your retirement-savings goal should be a breeze.

Breaking through. Suppose you expect eventually to earn $80,000 a year. Looking ahead to retirement, you reckon that -- in addition to Social Security -- you will want maybe $45,000 a year from your portfolio, adjusted for inflation.

To generate that $45,000, you will need a $1 million nest egg, calculated in today's dollars. This assumes that, in retirement, you use a 4.5% annual portfolio-withdrawal rate.

Investment Growth

"People wonder how they will ever accumulate enough money," says Charles Farrell, a financial adviser with Denver's Northstar Investment Advisors. "But what many investors fail to understand is that, once they reach a certain level of assets, most of the savings should come from investment growth."

Mr. Farrell figures the breakthrough occurs at around two times income. Let's say your salary has hit that $80,000, you have amassed $160,000 in savings, you are socking away 12% of your pretax income each month and your investments earn 6% a year.

Over the next 12 months, your $160,000 portfolio would balloon to $179,518, or $19,518 more. Your monthly savings would account for $9,600 of that growth. But the other $9,918 would come from investment gains. In other words, you've got to the crossover point, where the biggest driver of your portfolio's growth is now investment earnings, not the actual dollars you're socking away.

You should, however, keep salting away money. That sacrifice will be handsomely rewarded, as things really start to snowball. Using the assumptions above, your portfolio would soar from $160,000 to more than $418,000 a decade later. True, part of this gain would be lost to inflation. But inflation should also drive up your salary, allowing you to squirrel away more money.

Get Started Now

Getting started. That still leaves the initial task of accumulating two times income.

"It can take people 12 to 15 years," Mr. Farrell says. "The earlier you can start, the better. But if you're close to two times pay by your early 40s, you're probably in pretty good shape."

As you strive to amass that sum, your top priority should be funding your employer's 401(k) plan. In addition to the initial tax deduction and continuing tax deferral, you will likely receive a matching employer contribution, which will help speed your portfolio's progress.

If you can, save outside your employer's plan, by funding a Roth individual retirement account. That won't get you an initial tax deduction, but you will enjoy tax-free growth. A Roth also offers a heap of flexibility. At any time, you can withdraw your contributions -- but not the account's investment earnings -- without any sort of tax hit. That means your Roth could double as an emergency reserve or as your house down-payment fund.

Investment Ideas

Which investments should you buy? Check out broadly diversified no-load funds like AARP Aggressive and Schwab Target 2040, both of which require a $100 initial investment. Until you reach Schwab's $1,000 brokerage-account minimum, you will need to add $100 every month through an automatic investment plan, where money is pulled out of your bank account and invested directly in the fund.

Also consider Fidelity Freedom 2050 and T. Rowe Price Retirement 2050. The regular minimum at both funds is $2,500. T. Rowe Price will trim that minimum to $1,000 if you open an IRA and waive the minimum entirely if you sign up for a $50-a-month automatic-investment plan. Similarly, at Fidelity Freedom 2050, you can sidestep the minimum if you agree to invest $200 a month through Fidelity's SimpleStart IRA program.

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Minimum Wages Worldwide at Yahoo! News

Who's Earning What?
America's minimum wage, though unchanged in a decade, is still more than 250 times that of Mongolia.

Just Be Glad You Are Not In The Newspaper Business

2007-10-22T07:33:22-07:00

Very early in my career, like at the beginning, I had a boss who was not the happiest guy on the planet. He had about an hour and half commute by train each way which for me explained everything but so did a lot of other people but they seemed kind of normal. Not Dick, he was miserable.

Then one day he wasn't. Everyone noticed but put it down to exception. Until it happened again the next day and the next and the next. What was going on? As the junior guy with the most to lose, I was selected to ask about the reformation.

I did. Dick's answer--"I quit reading the newspapers."

Here is an article with a lot of references to newspaper articles which you may want to read but you should probably ignore if you want to be a successful investor.

Flaming Kamikaze Squirrels! (And Other Anomalies)

10/19/2007

Story Highlights:

• A true, prolonged bear market can’t be forewarned or foreordained by the mass media.
• This week’s market volatility is perfectly normal, not a specter of ghosts past—stocks remain a great value for investors

Discounting an anomaly is impossible. What are the odds a squirrel catches fire and ignites a car? Like zero, right? Whoops…it happened!

Flaming Squirrel Ignites Car in Bayonne
By N. Clark Judd, Hudson County Now
http://www.nj.com/hudsoncountynow/index.ssf/2007/10/flaming_squirrel_ignites_car_i.html

Flaming squirrels are uncommon…but fiery car-igniting squirrels are downright anomalies! As a car owner, there really is no way to protect against such an event, is there? (Do most car insurance policies cover flaming squirrels, or is that just geckos? If so, does that fall under “acts of god,” “collision,” “arson/vandalism,” or what?) We’ve written on the nature of market anomalies before:

Obsessing Over Black Swans (5/1/2007)
http://www.marketminder.com/commentary/commentarypage.aspx?articleID={798DE358-09EF-4BE6-B75C-AA673CB282E3}&sectionID=\commentary\daily

On the 20th anniversary of Black October, today’s market drop (S&P 500 shed 2.6%) has some folks wondering if it’s déjà vu all over again. But this is no new bear market and no downside market anomaly. This is barely a bump in the road.

Why? Many reasons. An important one is Black Monday took just about everyone by surprise. It’s extremely difficult to have a true market crash everyone expects because that expectation will be baked in to stock prices a priori.

A true crash today would not come as a surprise—too many folks are worrying about it:

Crash and Quivers a Lesson, Not Guide
By Annette Sampson, Sydney Morning Herald
http://www.smh.com.au/news/business/crash-and-quivers-a-lesson-not-guide/2007/10/19/1192301043459.html

Watching for the Next Black Monday
Bryant Park Project, NPR.org
http://www.npr.org/templates/story/story.php?storyId=15436281

20 Years Later, Could Markets Crash Again?
By John Waggoner and Adam Shell, USA Today
http://www.abcnews.go.com/Business/PersonalFinance/story?id=3750809&page=1

Paint it Black
Economist.com
http://www.economist.com/finance/displaystory.cfm?story_id=9993586

As a matter of fact, the so-called ills frightening today’s markets are the oldest of this bull market!

Wall Street Walloped
By Alexandra Twin, CNNMoney.com
http://money.cnn.com/2007/10/19/markets/markets_0405/index.htm?postversion=2007101916

We quote: “Stocks slump, with Dow down 300 points on credit and housing sector woes, earnings fears, record-high oil prices, slide in dollar, questions about the Federal Reserve.” Not a new worry among them! That’s great evidence this is mere short-term investor psychology.

On Monday we gave our thoughts on why twenty years later a new Black Monday is highly unlikely:

Ghost of October Past (10/15/2007)
http://www.marketminder.com/commentary/CommentaryPage.aspx?articleID={3D4C6163-2B00-498C-8B3A-2481840C0DF0}

Keep in mind, the week’s market drop is not even the largest one week drop of the year. This is still well within the confines of normal market volatility.

Don’t fret stocks too much—their prospects for the immediate future are still stellar. This was just a rough week. But if you require further solace, here’s some sense about 1987 and today:

The Truth About the Crash of 1987
Donald Luskin, Poorandstupid.com
http://www.poorandstupid.com/2007_10_14_chronArchive.asp

Have a great weekend…and watch out for those kamikaze squirrels.

Cheating Today

2007-10-19T06:42:11-07:00

Actually I've been cheating for the last couple of weeks since our son went to blow up things in the Las Vegas desert, we're building a house, I may have to sue some people in Florida, and I'm having trouble getting the electrician to show up. Not a lot of time for other things like concentrating so I'm cheating. Actually the subject is about paying attention to only certain things so take a look at this article from Marketminder.com (again) and learn to ignore thinking that only gets in the way of getting rich. Here goes---

The Myth of One

9/12/2007 |

Right now, you’re reading this column and your mind is focused on each sentence. That’s a marvelous and miraculous thing your brain is doing! The ability to focus on one thing is an incredible feat of focus allowing us to accomplish much in life. But there’s a big drawback: While you’re focusing on this column, there’s a whole world of activity your brain is ignoring!

That pain in your back, the chatty co-worker across the room, the phone that won’t stop ringing, the fly buzzing around your head…where did all those pesky thoughts go? None of them ceased to exist, you just stopped paying attention for a few seconds.

Blocking extraneous issues from our minds and directing our focus towards what’s most relevant is a nifty feature of the human brain: We’re actually designed to ignore most of what’s going on around us. Human brains—and those of many animals—are made to focus and reduce situations to actionable, understandable steps. We can’t keep a whole lot of information at the forefront of our consciousness for very long. At best, we can hold on to a few items at a time, but mostly we just focus on one thing or we’ll forget it.

That’s because evolution designed the brain as a hierarchical thing—receiving stimulus from the outside world and running the data through various neural unconscious systems (which account for the vast majority of brain activity) and deciding what, if any, information is worth bringing to your actual frontal lobes (where most of your consciousness is believed to reside). You’ll never even know about most of what your brain does or perceives!

That’s a great thing because nobody wants to be thinking about regulating their heartbeat, digesting this morning’s cinnamon raisin bagel, or focusing the lenses in their eyeballs to read the newspaper every second of the day. Our unconscious brains do all that heavy lifting so we can put our attention on other issues.

Only problem is, the brain’s tendency to block out extraneous information can be a very hazardous thing for investors.

I like to call most of today’s financial media pundits disciples of the “Myth of One.” That is, most stories we read today tend to focus on one issue alone as if that was the only thing moving stocks. “Oh, stocks were down today because housing starts fell last month!” or “Stocks went up because mortgage loan demand was higher than expected in August!” (Really? Since when are we suddenly all so focused on mortgage demand as the seminal market moving issue?)

The reality is millions upon millions of factors are acting on the market at any given time. But our brains can’t live with that idea so we write and read stories about single factors as if they were the only relevant thing. How absurd! But that’s how our brains work—we’re just not made to see the big picture. (In fact, our brains are so blind no one seems to notice corporate earnings are easily surpassing expectations this year!) Today the singular mythic issue is credit and housing, yesterday it was energy prices and carry trades, and tomorrow it will be something else. That’s your brain tricking you into the Myth of One.

It seems impossible to truly understand what’s going on in markets if we can only focus on a few measly issues at a time. What can we do?

One useful strategy is to put things into perspective. Often when investors get too focused on a single issue it gets blown far out of proportion. A great example is last week’s US employment report. Investors headed for the hills as the S&P 500 relinquished more than 1.5%–supposedly all for a job contraction of 4,000. When we consider a workforce of over 153 million, 4,000 jobs account for less than one thousandth of a percent of the employee base. How silly! There’s virtually no way such a small thing could account for such a big move. That tells you investors irrationally fell prey to the Myth of One. If you can see that, you’ve put the issue into perspective and gotten ahead of the game. Read more about the employment issue here:

Belaboring Labor, 9/7/07
http://marketminder/commentary/CommentaryPage.aspx?articleID={FCC988F3-72BA-4D67-97CE-10681D05A89C}

Ultimately, you’re just going to have to live with the brain you’ve got. But that doesn’t mean you have to buy in to the myth that just one story alone moves global markets at any given time.

Sometimes You Have To Put Up With The Bad To Learn Something--Annuities

2007-10-12T07:28:12-07:00

What I mean is that this article, which I stole off MarketMinder.com which they got from Money magazine, is pretty boring but useful so try and read it. Read it so when you get a call from an insurance salesmen pitching these things two red lights will go off in your brain--high fees and taxes. Then say no.

Pay attention to the last couple of paragraphs where the guy has some alternatives, alternatives which Uncle Bill tells you all the time. Have a good weekend.

Early nest egg: Say no to annuities

If you're still building up your retirement, steer clear of annuities. They have a function, but not quite yet, says Walter Updegrave.

By Walter Updegrave, Money Magazine senior editor

October 11 2007: 9:23 AM EDT

Sign up for the Ask the Expert e-mail newsletter

NEW YORK (Money) -- Question: I'm 44, and after maxing out my 401(k) and Roth IRA, I still have about $400 a month I'd like to invest outside these accounts for early retirement. Would you suggest I invest this money in an annuity? - Angie Tyrie, Hinton, West Virginia

Answer: The short answer is no, I wouldn't recommend you invest your extra savings in an annuity. Although I do believe a type of annuity known as an immediate, or payout, annuity can in certain circumstances play a valid role in a retiree's portfolio (for details, click here), for reasons I'll get into shortly, I don't think annuities are a particularly good way to build a retirement nest egg, particularly if you plan on tapping that money for early retirement.

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Video

Gotta Quit Singing The Blues

2007-10-11T06:56:18-07:00

The market hits an all time high but most people think the world is coming to an end. In addition, lots of people say 'so what?' because the market is getting a bit ahead of where it was seven years ago. Number wise, yes but economically no. Seven years ago we had the dot.com nonsense with PEs so out of whack that the bottom had to fall out and it did.

Check out this MarketMinder.com article on the new high. It has one line that should be imprinted on your investing eyeballs so you see it every day which is---Pessimism and undue worry are the stuff of bull markets; euphoria is the bane.

Remember that and read on.

Happy Anniversary!

10/10/2007

Story Notes:

Yesterday the bull market celebrated its fifth anniversary, but you’d never know it by reading financial headlines over the same period
Fears about stocks gaining “too much too fast” and “too many years of an up market” aren’t based in reality or logic
Strong economic and market fundamentals supporting stocks’ climb are still in place—making the immediate future look bright

MarketMinder doesn’t like to dwell on the past because it can’t tell you much of anything about the future. But we feel it’s incumbent upon us to highlight a scarcely recognized fact: The bull market for global stocks is five years old. Here’s one of the few acknowledgements we found:

Happy Birthday, Bull
By David Landis, Kiplinger
http://www.kiplinger.com/features/archives/2007/10/bullmarket.html

Five years ago yesterday, the S&P 500 closed at 776.76. Today, it sits around 1560…over a 100% recovery in five years. Good times!

According to Standard & Poor’s, in those five years Energy stocks were the winner, gaining over 236%. Other economically sensitive sectors also flourished, including Materials with 157%, Industrials with 124%, and Technology’s 144% gain. Traditionally defensive sectors like Consumer Staples and Health Care lagged, each with about 40% gains. An outlier was Utilities, which racked up a whopping 168% rise in the period. On balance, that’s very close to what you might expect from an economy experiencing sustained expansion and high demand. And these are merely US returns—foreign stocks fared even better.

Perversely, such a big recovery scares many—they proclaim it’s been “too much too fast.” But history tells us this recovery wasn’t all that big. The current bull is actually the second weakest of seven post-World War II bull markets that lasted five years or more, according to Standard & Poor's.

The “aging bull” argument doesn’t fly either. It’s a strange thing to believe stocks should go down just because they’ve been going up. This is a perversion of the mean reversion theory, which simply doesn’t pertain to stocks. There’s no mathematical, economic or financial law that says earnings, economic growth, or stock prices must revert back to any kind of average. Trends can last as long as underlying fundamentals support them. (See our past commentary “Vector Investing” 9/27/07 for more.)

To wit, the fundamental drivers propelling this bull remain intact: Better than expected corporate earnings and global GDP, high M&A and share buyback activity, and relatively dour sentiment (among many other positives out there) are all very much a reality today.

Yep, it’s been a good five years. We hope you enjoyed the ride, but we suspect most didn’t. Thinking back, folks fretted over everything from dollar doldrums, energy prices, terrorism, trade and budget deficits, carry trades, credit crunches, inflation, and consumer spending (to name a few). At one time or another each was hailed as the Apocalypse, yet NONE had the potency to slay the bull. We think that’s a great thing: Pessimism and undue worry are the stuff of bull markets; euphoria is the bane.

Today’s real risks (yes, there are always risks) are minimal and well contained. Deleterious government regulation, protectionism against free trade, and monetary or fiscal policy errors are remote. (For more, see yesterday’s commentary, “The Real Risks.”)

Looking back, it’s apparent stocks reflected reality—not media hype—over the past five years. And while it’s crucial to remain vigilant, don’t forget to step back once in awhile and appreciate the positives of this dynamic and wealth-creating global economy. More gains are just ahead.

The Stock Market--What To Watch Out For

2007-10-10T07:17:43-07:00

Uncle Bill is always looking out for your well being and as the credit crunch heads west and out of sight, I think, there are some real things to worry about and they are---

1) politicians

2) the Supreme Court

3) the Fed

As the guys over at MarketMinder.com (full disclosure--I am a client) are often more articulate than moi, I'll let them do the talking--I've got a house to get built.

The Real Risks

10/9/2007

Story Outline

“Credit crisis” headlines are being replaced by economically insignificant headlines, signaling a lack of legitimate negatives to report.
Legitimate market risks are few, and unlikely to impact the market much at this point. The risks for aggressive legislation and a major monetary policy error remain low.
Positive fundamentals currently far outweigh potential market negatives.

Anyone else notice the “credit crunch” headlines are starting to go away? They’re still out there, but no longer occupy top billing, chased off by Britney’s child custody saga, Pamela’s quickie Vegas nuptials, and harrumphing over stores gearing up for Christmas in October. This is front page stuff from allegedly “legitimate” news sources! Very bullish. (For more, read MarketMinder commentary “What a Week,” 10/05/2007.)

We spill barrels of virtual ink at MarketMinder underscoring why now’s a great time to be bullish and pointing out glaring flaws in popular bearish views. As we’ve covered here, popular concerns such as the credit crisis, a weak dollar, allegedly slowing US growth, trade deficits, debt, and even terrorism don’t have the market impact folks think. (For more, you can refer to our commentary archive.) But that doesn’t mean we’re blindly bullish. Rather, we see that legitimate risks are unlikely to develop into major market negatives right now and are far outweighed by positive fundamentals.

For example, we’d view an aggressive legislative reaction to perceived subprime problems as a legitimate risk. Our senators vow to “solve” subprime by forcing banks to tighten lending standards in order to protect the “little guy.” (Pardon us, but who is going to protect the “little guy” from the Senate?)

In our view, any attempt to limit credit access could have negative economic and market consequences—perhaps serious. Is it time to pack it in, go to cash, and safely watch the political melee from the sidelines? Not at all. As we’ve discussed here in the past (“Veto Power”—10/04/2007, “A Political Punch”—05/31/2007) third and fourth years of presidents’ terms are famously feckless. We nearly always see the president’s party lose relative power in the mid-terms—donkeys and elephants alike—setting up the perfect recipe for political gridlock. The political furor over subprime is likely to devolve into nothing more than inane investigations and name-calling—a very good thing if you’re a fan of rising stock prices.

The same goes for rising protectionism—another legitimate market risk. Though congressional cries to “save American jobs” may increase political contributions in the near term, efforts to hinder globalization will likely have an ugly economic outcome. But for now, third- and fourth-year politics should keep ill-considered protectionist legislation to a minimum.

What about a case the Supreme Court is hearing today—being called the Roe v. Wade of securities law (i.e., unique in its far-reaching significance)? In StoneRidge Investment Partners v. Scientific-Atlanta, the plaintiffs argue investors have the right to sue third parties—accounting firms, investment banks, consultants, vendors—if a public company commits fraud. If the plaintiffs succeed, it could mean open season on big business and an exponential increase in frivolous lawsuits. (Great news for plaintiff’s attorneys! Bad news for pretty much everyone else.) Imagine what companies would have to do to protect themselves from litigation. CEOs would become prohibitively risk averse—which would likely reflect in lackluster earnings growth and stock prices.

StoneRidge: Don't Look For a Landmark Ruling
By Brian Wingfield, Forbes
http://www.forbes.com/home/businessinthebeltway/2007/10/08/stoneridge-lawsuits-supreme-court-biz-wash-cx_bw_1009scotus.html

However, we agree with this article’s assessment that the Supreme Court is highly unlikely to rule in favor of the plaintiffs. A 1994 precedent and two recent lower court decisions make it easy for the Supreme Court to rule against the plaintiffs and in favor of capitalism. Another risk moderated. (Though we’ll watch the Court carefully on this.)

Another risk we see is a massive monetary error—like the Fed aggressively tightening or even dropping rates dramatically. We view this risk as slightly higher now, though still unlikely. Mr. Bernanke will be the first Fed head up for reappointment in the first year of a president’s term, as opposed to the fourth year (thanks to term limits imposed on Mr. Greenspan). Ben’s recent cut might have been a signal to presidential candidates, “Hey! I can be accommodative! You want to get reelected to a second term? You need a pleasant economy in the first—and I’m your guy!” If he is indeed auditioning, he may very well cut rates again. But, we still don’t see a few rate cuts as a major deal. First, they take a long time to be felt. Second, inflation has actually been dropping over the last two years. We can’t see how another cut or two will ignite inflation radically from here. File “major monetary policy error” under “still highly unlikely.”

None of these seem likely to flare into major market conflagrations at this point. And they pale in comparison with healthy fundamentals like a growing global economy, strong corporate earnings, and attractive equity valuations. Add to the mix a historically unique positive gap between earnings yields and bond yields globally—which contributes to shrinking stock supply—and a lack of economically significant headlines, and the bears don’t stand a chance. Neither does Britney’s custody case, by the way, but as long as she hogs headlines and fundamentals remain positive, we’ve got a nice ride ahead of us.

California--A Nice Place To Visit But I Wouldn't Want To Live There

2007-10-09T07:35:27-07:00

Went out to the Bay Area for my niece's wedding. Great trip, had fun, glad to be home given the price of houses and a wee bit of overcrowding. Seems that I am not the only one glad to be out as outlined in this article at MarketMinder.com. Enjoy--if you can.

California Hates the Poor

10/5/2007 |

California hates the poor. At least the Golden State certainly seems to act that way, given the way it treats its lower-income residents.

But wait—isn’t California known as one of the most socially progressive states, spending billions of dollars on social programs and public assistance for low-income residents each year? Indeed! Yet Californian legislators uphold a policy choking off precious dollars that could go to residents needing it most. That wacky policy is the Golden State’s tax structure.

California boasts the most punitive state income tax system in the entire Union. (Not so fast New Jersey, Hawaii, Iowa, and Oregon! Though you’re all nearly as bad.) With so much wealth in the state, you might not feel much immediate sympathy for those paying the lion’s share of the state taxes. After all, California’s got Hollywood movie stars, celebutants, and Dot-Com-mega-billionaires! Make them pay! Folks tend to forget California has millions of souls—the vast majority are Average Joes.

Let’s examine the current tax structure. California income taxes kick in at a modest 1% rate for annual income up to $6,622. Not too bad—$6,622 seems a small amount to hit up for income tax, but 1% isn’t that much. But, California’s highest tax bracket of 9.3% (the highest in the nation) begins at the affluent, wallet-busting, Bentley-driving sum of $43,468.

I’ll repeat that. California imposes the nation’s highest state income tax level of 9.3% on residents earning more than $43,468. Some perspective: In 2004, the US Census reported California’s median income was $51,185—higher than America’s median income of $44,648. Translation: If you’re “middle class,” California wants 9.3% of your income. It’s a shakedown for your lunch money.

Meanwhile, nearby states Washington, Nevada, and Texas charge no state income tax at all. Arizona starts its highest tax bracket at $150,000 where residents pay 4.57%—less than half California’s top rate. It’s hardly surprising these states are some of America’s fastest growing states. In 2006, Arizona’s and Nevada’s populations swelled over 4 times faster than California’s.

If you’re a Californian with a nice retirement savings, where would you retire? California wants a hefty portion of your retirement income every year, whereas nearby Washington and Nevada want none. Add to the equation the far lower cost of living in those states, and relocating seems like a no brainer. So, folks leave and California ends up with none of their income, property, or sales tax revenue.

Those poor souls remaining in California end up with less money to fund public schools, build new roads, pay for social programs and so on. All thanks to politicians ignoring fundamental economic principles and placing too heavy a burden on its working residents and businesses.

When a state places too heavy a tax burden on its citizens or businesses, the government stifles consumer spending, business investment, and actually ends up collecting far less tax revenue. A government can maximize its tax revenue at an optimal point. Tax too much and folks don’t see much of a reason to get out of bed in the morning. Mrs. Entrepreneur fails to see the upside in launching her cutting-edge new business idea. Less business activity means less tax revenue. The Laffer Curve (shown here http://upload.wikimedia.org/wikipedia/commons/4/47/Laffer_Curve.png) demonstrates the concept.

If prohibitive taxation makes a difference between US states, one could also apply the concept to countries. When a nation imposes high hurdles for new business development and wealth creation, the prospect of strong economic growth becomes increasingly remote. Conversely, if a country slashes corporate tax rates to spur economic activity, all other factors remaining constant, that’s bullish for growth.

Take Ireland for example. The Emerald Isle slashed its corporate tax rate to 12.5%—one of the lowest rates in the developed world.

Selected Corporate Tax Rates by Country

Ireland                               12.5%
Netherlands                         25.5%
United Kingdom                   30.0%
China                                  33.0%
Belgium                               33.9%
France                                  34.4%
Germany                            38.6%
USA                                     39.5%
Japan                                  39.5%

Much to the chagrin of France and other EU heavyweights, economic growth in Ireland is soaring! After all, entrepreneurs and existing businesses only need two very simple elements to justify a venture: profit and human capital. Ireland has an educated, English-speaking work force and a corporate tax rate low enough to entice entrepreneurs from around the globe. Ireland will likely attract business activity, people, and tax revenue other countries will miss out on. It shouldn’t be much surprise, then, that Irish GDP growth is expected to more than double the EU’s average. Erin go bragh!

Eastern Bloc countries are also joining the low-tax party. Estonia, Latvia, Russia, Ukraine, Slovakia, Romania, Georgia, and Macedonia all successfully introduced low flat tax structures in recent years. These moves now pressure Western European countries to either become more competitive with their business climates or face a hemorrhaging economic growth towards their neighbors with cheap labor and more welcoming tax structures.

With one of the largest gross domestic products in the world, one could only dream of the economic boom resulting from slashed California tax rates (not to mention falling federal tax rates). With the Irelands and Nevadas out there, Uncle Sam and the Golden State better act fast. Their poor depend on it.