No. It’s amazing how this simple two-letter word has spawned so many articles, studies and blog posts. How do you feel when you hear or read those two letters? Should we say NO more often, or less often – to our kids, to our boss, to our customers, to the never-ending stream of information available to us today?

Depending on your perspective at any given moment, “no” can have positive or negative connotations. Inherently, the word is negative. But what about all those articles on “The Power of No”? Sometimes it feels great to say no. In other cases, saying no can mean missing a wonderful opportunity. How can we balance the purpose and the pessimism of no?

The Purpose of No

No gives us a sense of control. It defines limits and boundaries. Whether you’re talking about spending, investing, parenting or productivity, limits are essential. We simply can’t say yes to everything and everyone or we will inevitably burn out. (Incidentally, April was Stress Awareness Month. )

Here are a few of the ways limits can help with different parts of our lives:

Spending: Obviously, we need to limit our expenses to an amount that is well below our income. Build savings, not debt. That requires restraint.

Investing: When investing our hard-earned savings, we need to limit our risk and maximize our reward potential. This is much easier said than done, and will mean different things to different people depending on their risk profile. Still, investment boundaries are essential. Consider stop loss levels, tactical asset allocation and rebalancing as risk management options.

Parenting: One of the best books I ever read on parenting was Barbara Coloroso’s Kids Are Worth It. In it, she draws a distinction between “brick wall” and “jellyfish” parenting. Brick wall parents have too many boundaries, and jellyfish parents, few or none. Rather, she advocates “backbone” parenting: lots of logical limits combined with plenty of flexibility.

Productivity: In order to be more productive, we need to place strict limits on how we spend our attention. Multitasking doesn’t work. Neither does overtasking. There are only so many minutes in your day, and days in your life. Spend them wisely.

The Pessimism of No

Seth Godin had an excellent blog post a couple of weeks back on The Coalition of No. It was a great reminder that, while “no” is essential in some of the ways we described above, it can become a negative influence (literally) if we use it too often. Here’s Seth on the dangers of the coalition of no:

It’s easy to join.

There are a million reasons to say no, but few reasons to stand up and say yes.

No requires just one objection, one defensible reason to avoid change. No has many allies–anyone who fears the future or stands to benefit from the status quo. And no is easy to say, because you actually don’t even need a reason.

Limits can be very useful, but they’re also – well – limiting. Used in excess, they prevent us from moving forward, setting goals, learning new things, and reaching for our dreams. These are the things that engage us, give our lives meaning, and enrich us in ways that money just can’t. (If we do them just right, by the way, they can bring in money too – see Apple.)

Pushing Boundaries Without Chaos

How about a few ideas on how pushing boundaries can help rather than hurt? We can embrace change and flex boundaries without breaking them. That’s the idea  behind backbone parenting and it can apply to all sorts of things. Try these corollaries to our list of purposeful limits:

Spending: Can you save a little extra in order to realize a long-time dream like starting your own business, going back to school or taking that vacation you thought you could never afford? What are you willing to risk or give up to get there?

Investing: Are you willing to invest a little in yourself? What habits are you willing to break to do it? How about learning a little more about investing and risk management so that you can understand investing better? Even if you want to use an advisor, at least you’ll have an idea whether they’re worth their fees or not.

Parenting: I can vouch for the idea that letting go can be quite unnerving for a parent. We want to protect our kids, to keep them safe at all costs. Not only is it our desire, it’s our duty. But saying no too much can be just as harmful as saying yes to everything. I like to say yes as often as I realistically can so that I can utter a firm no when I need to. I’ve found that you have to know your own kids too. What’s perfectly safe for one may be a risky proposition for another.

Productivity: Could you grow your business faster or snag that promotion at work if you pushed a few boundaries? What if you came up with a creative idea to solve a problem – and actually told somebody about it? What if you stopped just mailing it in like a lot of your competitors or coworkers? What if you cared, took that extra step, and went above and beyond the call of duty?

The Bottom Line 

There you go. “The bottom line” is itself another kind of boundary. It signals a moment to pause and tabulate where we stand. What’s the bottom line on those two little letters? N-O. No is simultaneously essential and poisonous. Like any other tool, it can help a lot, but only if we know how to use it properly.

How do you balance the power of no?

No related posts.

Welcome to the 65th edition of the Totally Money Blog Carnival! It’s been a month since Jim Yih and I joined Balance Junkie to help share the workload with Kim Petch and so far I think it’s gone pretty well. Kim is still contributing her insightful posts (and hopefully finding that extra time to work on her business). Jim has had a chance to tackle other topics that wouldn’t really fit on Retire Happy Blog. I’ve been lurking behind the scenes working on some of the backend things that bloggers need to do, like speeding up the site, increasing traffic, etc.

I wanted to mention Jim’s new book that’s being launched online today. Ideas for Success, Wealth & Happiness is a collection of inspiring quotes that Jim has collected over the years and published for his children and to hopefully help others as well. One of the ways he’ll be able to help is that all proceeds from the sale of this book go to charity. While any money made from the book will always go to charity, Jim is hoping to campaign throughout May to sell as many copies as possible and really make an impact. So consider picking up Ideas for Success, Wealth & Happiness this month in either paperback or ebook. If you’re a blogger, I’m sure he’d love some support with a mention on your blog or a tweet or like over at http://retirehappyblog.ca/ideas-for-success-wealth-and-happiness/.

Editor’s Picks

Miranda Marquit at Planting Money Seeds presents Online Poker: Is It as Legit as Stock Picking?, saying “There are those that believe stock picking is a lot like gambling — and those that believe online poker is a safer bet than stock picking.”

Corey at 20s Finances presents Why Cars are Destroying Our Society, saying “What kind of car do you drive? Are one of those people that worries about breaking down on the side of the road because your car is older than most high schoolers? Or are you someone who loves the smell of a new car. We all know that smell – it’s not just a sign of its recent production date, but is also about comfort, security, and assurances aka warranties. ”

FMF at Free Money Finance.com presents 80-20 Your Career, saying “Your career is your most valuable financial asset and by working to maximize it you will make MILLIONS in extra income over the course of a working career. But what are the key things you should do to make the most of your career? Here’s my list.”

Teacher Man at My University Money presents Quebec Student Strike, saying “As someone that blogs extensively about the post-secondary student experience, and specifically about the Canadian scene quite often, I have tried to stay away from the contentious issue that is going on right now. I’m talking about the Quebec student strike.”

Mike Collins at Wealthy Turtle presents Rising Gas Prices Don’t Just Hurt At The Pump, saying “Rising gas prices make us pay more at the pump, but they also affect us in ways you’ve never considered.”

Budgeting

Daisy at Add Vodka presents Letting Go Of Ideals, saying “I find that in the PF blogosphere, there is a lot of intertwining with self improvement blogs and I think that by tracking our spending, budgeting, investing, and working toward financial goals leaks into other parts of our lives as well.”

Sean at One Smart Dollar presents Rent, Don’t Buy, saying “Do you have a home project that needs to get done, but a $500 tool is standing in your way? Save your money and don’t buy it, just rent.”

Philip at PT Money Personal Finance presents Surprising Statistics and the Food Stamp Program Eligibility Requirements, saying “The post outlines eligibility requirements and benefits of the Supplemental Nutrition Assistance Program (also known as “Food Stamps”). It’s important information should one’s family ever be in position to need the program.”

Careers

Evan at My Journey to Millions presents Wow. . .I Have Been at My Job for Five Years, saying “I have pretty mixed feelings about being at my job for five years. On one hand, I absolutely love my job for reasons other than money I don’t think there are many people who get to say that. My bosses are awesome. Period. I choose to hang out with them outside the office, how rare is that? Each inspiring in their own way, but both men are self made wealthy individuals that are just fun to hang out with.”

Linsey at 1099 Mom presents Ask 1099 Mom: What Makes a Good Sales or Media Pitch E-mail, saying “I get pitched numerous times during the day. Whether it’s for my blog, freelance articles, or social media promotion, there is no end to the requests for mention in my online properties. Some of these pitches are amazing. Truly. They make me warm and fuzzy and confident in my decision to promote. Others just stink. Here is what I look for in a great pitch. Use these guidelines anytime you reach out to a potential client, media rep or investor.”

Jeremy at Modest Money presents Importance Of Diversifying Online Business, saying “In the blink of an eye, your online business can get turned on its head. It is incredibly important that you diversify both your traffic sources and income streams.”

Jon the Saver at Free Money Wisdom presents Do Your Kids a Favor and Open a 529 Plan, saying “Did you you can benefit from a 529 college savings plan if you open one? you can avoid taxes and shelter your money for future expenses!”

Credit

John at Married with Debt presents Addicted to Debt, saying “We dont really think of debt as an addiction. Its not as though you have a burning desire to get debt if you dont have it. You dont hear about the car owner who recently made their last payment and started to crave making those monthly payments again. ”

Ryan at Early Retirement Investments presents Understand and Avoiding Student Loan Debt at Retirement Age, saying “Understand and Avoiding Student Loan Debt at Retirement Age and Why this is a great idea. ”

Debt Guru at Debt Free Blog presents Paying Off Debt is More than Numbers, saying “Find out why paying off debt is more than just numbers. Many social and mental influences come into play with your finances. ”

KT at Personal Finance Journey presents Do You Take an Honest Look at How You Spend Your Money?, saying “When you see your friends buying nice things such as a new car or a second home, do you automatically think that they have gone deep into debt for the purchase or do you secretly envy them and think they must have come into some money? Do you think, some people have all the luck ”

Paul Vachon at The Frugal Toad presents The Effect of FICO Credit Scores on Wealth Creation, saying “We all know that a good credit score can result in a better interest rate on loans but you may be surprised to learn that a bad credit score can affect you in ways you might not have thought about. In addition to paying higher interest rates, a poor credit score can result in higher insurance premiums, denial for employment, or having to pay a security deposit when leasing an apartment or opening a utility account.”

Mike at Rewards Cards Canada presents Best Cash Back Credit Cards, saying “For people like me, collecting travel rewards is not the best value for my spending habits and lifestyle. I like to put cold-hard cash back in my wallet every month to help supplement my everyday spending. Here are the best cash back credit cards:”

Mike at Rewards Cards USA presents Watch Out: Pitfalls of Credit Card Rewards Programs, saying “It’s important to understand that there are pitfalls associated with rewards programs. Participating in a rewards program, if you aren’t careful, can actually turn into a real problem, leaving you in debt – and without the rewards points you thought you had.”

Curtez Riggs at Life After The Army presents Looking For A Military Loan: Why Do So Many Service Members Have Bad Credit, saying “Hindsight has 20/20 vision. Looking back, I can see the mistakes so clearly, I wonder what motivated me to get into this mess in the first place. It all began the first time I walked into a payday loan company and inquired about their services. It sounded easy enough and all I wanted was a couple of hundred bucks. How much trouble could that cause – a simple $200 loan? Before I knew what was happening, there I was. In a pickle. I was relying on payday loans just to pay off the one I received during the last pay period.”

Bethy at Credit Karma Blog presents Do You Need Identity Theft Insurance?, saying “You might think it can’t happen to you, but it happened to 11.6 million American adults last year alone. In 2011, reports of identity fraud were up 13 percent from 2010. This increase might have you wondering if you should start paying for identity theft insurance. But is it worth it?”

Debt

Ben Feldman at ReadyForZero Blog presents Ways To Get Out Of Debt, saying “We want to help you understand the five major ways that Americans get out of debt. There are many unreliable and even predatory companies out there that will take advantage of you if you’re not careful, so you must do your research and understand how these options work and decide which get-out-of-debt method is right for you.”

Control Your Cash at Control Your Cash presents Nothing Is Your Fault Or, Student Loans Are Killing Our Economy, Part CXXV, saying “Everyone’s pissing away their money on a useless college degree. Even the President.”

J.P. at Novel Investor presents Savings And Debt Debate: Where Should The Money Go?, saying “The savings and debt debate has been ongoing since the first loan was created. With only so much income to spread around, a big decision must be made. Do you use any extra money to pay off debt or add it to savings?”

Shawanda Greene at You Have More Than You Think presents What Would Make You Go Into Debt?, saying “Don’t get me wrong. I love not being indebted to anyone, but there are some things that would make me give up my debt free status in a second.”

Economy

Janet at Credit, Eh presents Canadian Debt – Your Tax Dollars at Work [Infographic], saying “Canada’s government spending is starting to move away from these ideals, and deficit spending is becoming the norm. Our most recent infographic looks at how much public debt Canada has, and see what is happening with the money. ”

Finance

Stephen at NerdWallet presents Do You REALLY Need Life Insurance?, saying “The simple truth is not everyone needs life insurance. We’ve assembled a short risk assessment guide to help you decide whether life insurance is right for you.”

MMD at MyMoneyDesign presents How to Pick Good Mutual Funds for Your 401k or Retirement Plan, saying “Are you struggling to pick some good mutual fund options for your 401k? If so, here are my easy to follow tips for making the best of the choices you have before you.”

TRL at The Retired Landlord presents Real Estate Investing Has Risks, saying “Investing in real estate has its risks and expenses. Find out what you can do to prevent a negative cash flow. ”

Mike Piper at Oblivious Investor presents SIPC: What it Covers and Coverage Limits, saying “Despite the important role it plays, many investors know little about the SIPC and the protection it provides.”

Dividend Growth Investor at Dividend Growth Investor presents Build your own Berkshire with dividend paying stocks, saying “Buffett’s strategy of using Berkshire’s cash to purchase more businesses is similar to what dividend growth investors like to do. By creating a diversified portfolio of world class blue chip dividend paying stocks, investors are essentially creating a cash machine that would throw off enough cash to buy more shares in quality companies or to provide for in retirement.”

Frugality

Lazy Man at Lazy Man and Money presents The Super Fantastic Mega-Baby Post, saying “The last three days have been quite the blur. Over the weekend my wife and I put in a lot of time researching baby products. There’s so many of them. It seems like a vast majority are used for very specialized cases too. It makes me appreciate the simplicity of having a dog.”

Earth and Money at Earth and Money presents Planning a Green Frugal Wedding – Venue, saying “When it comes to the venue, you can be both green and frugal without seriously defying standard wedding traditions.”

Steven Zussino at Grocery Alerts Canada presents How To Save On Pet Supplies, saying “We aregoing to share some shopping tips to help you save on pet supplies. Our main focus would be on supplies for dogs and cats, with food costs being the particular expense that we are trying to reduce.”

Kevin at Thousandaire presents How to Save Money on Vacation, saying “Use frequent flyer miles, buy your hotel from groupon, and eat cheap foods if you want to save money on your vacation. ”

Miss T. at Prairie Eco Thrifter presents How to Save Lots of Money by Making a Few Simple Drink Changes, saying “The following list features some common drinks and how to save money when you buy them.”

Kristen at My Dollar Plan presents Frugal Foodie: 6 Alternatives to Dining Out, saying “Just because you’re on a budget, doesn’t mean you can’t still have fun with food and make eating an experience and adventure without maxing out your credit card.”

Sandy at Yes, I am Cheap presents Spirit Airlines Charges $100 Baggage Fee , saying “According to the Bureau of Transportation Statistics, “17 of the largest U.S. airlines collected $2.6 billion in baggage fees and $1.8 billion in fees for changing or canceling bookings during the first three quarters of last year. In 2010, 20 airlines collected $3.4 billion in bag fees and $2.3 billion in rebooking fees.” So, fees are here to stay and probably will get worse as gas prices continue to rise.”

Steve Zussino at Canadian Personal Finance presents Why Term Life Insurance is the Best Choice for Many Individuals, saying “While most people are aware of the need for life insurance, many have no idea where to start and what kind to go with. Life insurance comes in many different forms: whole, variable, term, permanent, just to name a few.”

Money Management

Lance at Money Life and More presents Five Money Milestones by Age 30 (More Like Your First Real Job), saying “While browsing the web I came across this video the other day “Five Money Milestones by Age 30?. They suggest the five following milestones: Build an Emergency Fund (Six Months of Expenses), Start Planning for Retirement, Manage Your Debt Load, Set a Monthly Budget and Stick to It, Set Yourself Up for Your Future – Start Saving Now!”

Wayne at Young Family Finance presents Buying the Best Car for Your Money, saying “Buying the best car for your money involves considering quality in addition to the sticker price. Find out if you are getting the best car. ”

PITR at Passive Income To Retire presents The Power of Re-Investing Profit, saying “Find out why re-investing profits is advantageous to establishing a sustainable business model. ”

Jason at Work Save Live presents How to Retire Comfortably: Start With the End in Mind, saying “I hope you enjoy the 4th post of my Understanding Retirement Planning & Investing series! If youve missed the first three posts be sure to check them out! Everything You Need to Know About a Roth IRA & Why to Start One. ”

Ashley at Money Talks Coaching presents We Maxed Out Our Roths!, saying “We are having a good April! Earlier this week I revealed that we refinanced our house. ”

Maria at The Money Principle presents Money for all seasons II: income, spending and age profiles and received wisdom, saying “In brief, I see the expectations of pitfalls in different -seasons- are the following.”

Hank at Money Q&A presents Which Is First: Paying Off Your Debt Or Investing For Retirement?, saying “Should you pay off debt, or should they start a retirement account first? This is a question that has plagued experts forever. ”

PK at Don’t Quit Your Day Job… presents What Kind of Investor Are You?, saying “If you are honest with yourself (and if you lie to yourself, who wouldn’t you lie to?) you can optimize your investing style for your personality type. I break down the investing archetypes into 4 boxes for investors with varying amounts of information and emotions.”

Matt at Living in Financial Excellence presents April Financial Literacy Month: April 27–Moving Costs, saying “Yay!! It’s my turn to do a video for Financial Literacy Month! Since I’m in the middle of moving from Wisconsin to Iowa, I thought it would be timely to share how we looked at a few of the financial issues we’re experiencing during the move. ”

Beating Broke at Beating Broke presents Money Rules by Jean Chatzky, saying “Chatzky is a pretty big name in the realm of personal finance media, so when I was asked if I wanted to review her latest book, I jumped at the chance. In Money Rules, Chatzky aims to break down personal finance into it’s most simple denominators and give it out in a set of rules.”

SB at One Cent at a Time presents Saving Money or Earning Money Where to Put your Priority?, saying “The problem comes when you are choosing one over the other or, giving priority to one over the other, due to limited time and resources. A guide to help you make informed decision.”

Raj at eMoneyLog presents The Basics of Money Management – Save, Invest and Repeat, saying “The article covers the basics of money management – saving, investing and repeating the process. The emphasis is on repeating as many people save and invest initially but do not repeat and do not accumulate wealth. ”

Steve at Brip Blap presents 7 Things You Don’t Want to Skimp On, saying “You don’t always want to save as much as you possibly can on everything. I can think of at least a few examples where spending the least amount possible is not always a great idea.”

Penny Thots at Penny Thots presents So You Think Little Things Are Not Important, saying “Now I am a big fan of Big Goals – I think we should dream big and take action to get up, get out and craft the lives for our families that we desire. Naturally I find myself at odds frequently with the dour Scottish Mindset………….. but I am sure you guys get where I am coming from? But the reality is, at some point you have got to stop, take stock and focus on the basics for a while. Sometimes it is about “taking care of the pennies and the pounds will look after themselves”.”

Echo at Boomer & Echo presents Our Fast Track To Financial Freedom, saying “After all our bills are paid, we have an extra $2,000 per month to work with. So we came up with a fast track to financial freedom. Here’s our 40/40/10/10 savings solution:”

Nelson Smith at Financial Uproar presents Or, You Could Just Burn Your Money, saying “Without a doubt, whole life insurance is one of the worst financial products you can buy. Click through to check out just how bad it really is.”

Martin at Studenomics presents What Should You Do Your First Month Out of College?, saying “How you can own your finances right out of school.”

Real Estate

101 Centavos at 101 Centavos presents Using Cattle Panels to Support Tomato Plants, saying “Staking up and supporting tomato plants has got to be one of the more time-consuming pastimes of the home gardener, and there’s plenty of ways to do it.”

Crystal at Budgeting in the Fun Stuff presents Build a Home Series: The Waiting Sucks, saying “Mr. BFS and I have been waiting to hear back about pricing on a bunch of options for our new house, but it takes forever to get information! ”

Nick at Step Away from the Mall presents How much house is too much, saying “Buying a house is never a simple process… Here’s my thinking about how to buy just enough house for my family.”

Reviews

Liana at Card Hub presents Is the LivingSocial Credit Card Worth Getting?, saying “Discounts for already discounted goods and services? That’s what the new Living Social Credit Card is offering. But, is this really a deal for the consumer? Let’s take a look…”

SB at Finance Product Reviews presents Best 3 Credit Cards For Travel Rewards in 2012, saying “We searched all travel rewards cards, analyzed their features and then listed the top three in 2012 based on the research. These are the top 3 leading travel rewards cards in USA in 2012″

Glen Craig at Free From Broke presents The Best Airline Miles Credit Cards , saying “Finding the best airline miles credit card can net you free flights, free car rentals and hotels, upgrades, free bag checking, priority boarding, and more! Look through our list of the best airline miles credit cards and see which is best for you.”

Roger the Amateur Financier at The Amateur Financier presents Book Review – The Art of Non-Conformity, saying “A review of the book The Art of Non-Conformity, a guide to living a rather unique life, that looks at ways you can have an unusual life and live well at the same time.”

Saving

Todd Tresidder at Financial Mentor presents Payoff Mortgage Early Or Invest – The Complete Guide, saying “This definitive guide explains the surprisingly complex issues surrounding your best choice for savings – either paying off your mortgage early or investing. It provides a step-by-step process to help you make this important savings decision.”

Jason at One Money Design presents Saving Money For College – A Upromise Review, saying “Upromise uses the familiar concept of cash back rewards to help saving for college education. This might be a good program to consider to complement college savings.”

Taxes

Eddie at Finance Fox presents I Filed My Taxes, I’m Owing and I’m OK With That!, saying “This weekend I got around to completing my taxes, and without much surprise I’m owning the government $1,800 in taxes. ”

John at Wallet Blog presents Students with Summer Jobs Shouldn’t Forget the Tax Man , saying “Students – Looking forward to that summer job? Avoid a nasty surprise in the spring. Don’t forget to take taxes into consideration.”

Jason at Live Real, Now presents Insane Incentives, saying “For a full two weeks before the Minnesota Comprehensive Assessment tests, the school effectively shut down the education program to prepare for the MCA test. That’s two weeks of studying for a set of standardized tests that focus on reading, writing, and arithmetic. I’m a fan of schools prioritizing the three Rs over other subjects, but that’s not what they did. They spent two weeks studying testing strategies, not the material contained in the test.”

Other

Aloysa at My Broken Coin presents Curb Your Spending with Pinterest, saying “Yes, you’ve read it right and no, I have not lost my mind. I believe that you can curb your spending with Pinterest. If you’ve been reading this blog for some time now, you know then that I am a shopper and a spender. ”

YFS at Your Finances Simplified presents Top 11 Reasons You Should Use Yodlee MoneyCenter, saying “You should keep track of your finances. It is as easy as that. Whether you decide to use a pen and paper, a spreadsheet, or an online account aggregator, you should have an idea of how much you are spending and on what.”

Jen at Master the Art of Saving presents I Hate Housecleaning…But I Love Earning Opportunities, saying “Im not one of those people who enjoy cleaning; I absolutely hate housecleaning. No way that sticking to my routine was worth passing up an earning opportunity. ”

Sustainable PF at Sustainable Personal Finance presents Recession Gardening to Save Money, saying “I recently discovered a practice that I’d never heard of before – recession gardening. ”

Amanda L Grossman at Frugal Confessions presents Sifting Through Energy Company Offers in a World of Deregulation: Part 1, saying “Two weeks ago while shopping for electricity I gave up. By giving up, I mean that after finding out I would be charged a $9.9 ”

Daniel at Sweating the Big Stuff presents Things I’d Buy If I Were Rich, saying “It’s fun to daydream about what we’d do with more money than we could ever need. Here’s my list of items I’d like to have if I were in that situation.”

Jeremy Waller at Personal Finance Whiz presents How to Wreck Your Car, Buy a New Car, Refinance Your Mortgage and Pay off A Credit Card at The Same Time, saying “What a crazy month it has been. I feel like Ive gone through a financial blender. As I mentioned a few weeks ago, my beloved Jeep was totaled. I was rear-ended by someone going 60 mph. My car didnt stand a chance. State Farm estimated it would cost $10,132.95 to repair. But, the Jeep was This post was originally posted to Personal Finance Whiz. ”

Suba at Broke Professionals presents How Playing Monopoly Can Improve Your Financial Knowledge, saying “How Playing Monopoly Can Improve Your Financial Knowledge is a post from: Broke Professionals if you enjoy it, please visit us and subscribe to the Feed. If you haven’t played Monopoly before, you should download it to your phone or buy the board game. Don’t worry, there’s not much difference. ”

A Blinkin at Funancials presents It’s The Economy, Stupid!, saying “With the Presidential election in the U.S. beginning to heat up, it is natural to forget about elections elsewhere in the world. But before our elections start to cause volatility in the Fall, a round of elections in Europe in May could have a very meaningful impact on the marketplace. ”

krantcents at KrantCents presents The 3 N’s of Success, saying “The 3 N’s of Success is the fourteenth in a series of articles to help you reach your goal. ”

Kyle at The Penny Hoarder presents How to Make $24/Hour Teaching English Classes Online, saying “If you know how to speak a language, you qualify for this freelance job. There’s a world full of people that are trying to learn how to speak English. ”

Steve at Money Infant presents 5 Smart Things to do With Your Money, saying “The following was written as a guest post for MI: Learning to make your money work for you is a good idea for anyone who has suffered from the economy in ”

SFB at Simple Finance Blog presents Are Mortgage Points Worth It?, saying “Breaking down the numbers to see if mortgage points to secure a lower interest rate on your home loan is really worth it. ”

MR at Money Reasons presents Learning Versus Watching TV As Entertainment, saying “Learning instead of Watching TV can be very rewarding! Why not try to learn something simple and quick and see if you find it rewarding or not? ”

Shaun at Smart Family Finance presents Ways Your Family Can Invest In Gold, saying “As many world economies continue to stagnate in todays weak global economy. Investors are looking to broaden their portfolio horizons and gold is one investment that is popular. ”

Don at MoneySmartGuides presents Is Tipping Out of Control?, saying “Growing up, I would see my parents tip the waiter or waitress at the restaurant where we ate. I would see my Dad tip the barber for cutting our hair. Other than that, there wasnt much tipping done. ”

FG at Financial God presents Five Tips on How to Protect Yourself from Getting Financially Destroyed, saying “1. Invest money in precious metals. Even the gold pessimist Jon Nadler recommends that it is wise to store about 10of ur net assets in the form of physical, allocated gold. This means gold you hold in direct physical possession, or in vaults overseas. ”

PPlan at Provident Plan presents Seven Deadly Sins and how they lead to Financial Disaster, saying “Learn how the seven deadly sins offer financial guidance. ”

Jeffrey at Money Spruce presents Hitting a Financial Knowledge Peak and What Really Matters, saying “Ive spent the past 2 years absorbing all the personal finance knowledge that I possibly can. Books, blogs, webinars, conferences, and more Ive read a ton on a wide range of topics. I dont know everything, but I still feel like Ive hit a knowledge peak. ”

Tushar at Start Investing Money presents Can Fun Money Fit into a Smart Investing Plan?, saying “This Post was Originally published at Can Fun Money Fit into a Smart Investing Plan? on Start Investing Money ”

Luke at Learn Bonds presents 101 Free Resources for Bond Investors, saying “A list of all the best free resources from around the web for bond investors. Blogs, Education, News, Bond Market Data sources and more. ”

Young at Young And Thrifty presents Time to Take a Step Back, saying “About three years ago, I had a dream of starting a personal finance blog. My family and my boyfriend laughed at my lofty idea. I thought- I’ll show them! I can be successful if I work hard at it. It was my dream to make it successful and show the world that a female voice could swing with the big boys in the personal finance blog realm (woot!).”

Roshawn Watson at Watson Inc presents How To See A Bright Financial Future, saying “Perhaps one of the biggest ways to effect change financially speaking is to alter your belief system. Here are four ways to reshape your views regarding money.”

Van Beek at Stock Trend Investing presents Growth Investing vs. Value Investing, saying “When it comes to investing in stocks, there are two major styles of investing: growth investing and value investing. There has been an intense debate as to which investment style yields the best returns and what style of investing suits investors. Let us first understand the two styles and then compare the two approaches.”

Barbara Friedberg at Barbara Friedberg Personal Finance presents The Secrets of Wealth Revealed by Dr. Charles Richards, saying “Learn the secrets of wealth from best selling author and therapist. It’s more than you bargained for.”

Squeezer at Personal Finance Success presents Instructions on how to get started in dividend reinvestment plans (DRIPs), saying “I give my thought processes and what to look for when wanting to invest in a dividend paying company. I explain how to get started by purchasing the minimum amount of shares or dollars.”

Bloggers, don’t forget to submit your posts to the next edition of the Totally Money Blog Carnival!

Related posts:

1. Carnival of Financial Planning – Edition #175
2. Vote for Canada’s Best Personal Finance Blog
3. The Gene Mauch Rule for Investing Success

If I were one of these crazy hedge fund guys, with the slick haircuts and fancy shoes and racing stripe shirts, the trade I’d put on is 10-times-leveraged natural gas long versus 10-times short Apple.

~ Jeffrey Gundlach, April 26, 2012

The quote above is from the latest presentation given by DoubleLine’s Jeffrey Gundlach. For those who aren’t familiar with him, Mr. Gundlach has been anointed by many as “the new bond king”, taking over for PIMCO’s Bill Gross. When he talks, people listen. Josh Brown was in attendance at the event and was kind enough to share his Notes from the DoubleLine Lunch.

At the time Mr. Gundlach made his short Apple/long natural gas pair trade recommendation just a week ago, Apple had just reported killer results and resumed its upward trajectory after a short but steep correction. Natural gas was bouncing a little from its latest tumble in a multi-year shellacking. It’s only been a week, but Apple has continued to slide and natgas, to rally. For now, Mr. Gundlach’s trade is working. I wonder whether that has anything  to do with fund managers taking his advice?

On Stocks, Debt, Austerity, and Fed Futility

So what else did Jeff Gundlach have to say? I’ll hit a few of the highlights that stood out to me below. (Again, this is courtesy of the Reformed Broker. You can read the full article for a lot more detail.)

• The Shanghai market is a great leading indicator for stocks.
• The wealthy don’t pay enough taxes in the US.
• Like the Roman Empire, the US spends a ton of money on the military, although health care and Medicare are also huge budget-busters.
• QE has boosted stock prices, but hasn’t accomplished much more than that. (Check out his Bernanke Wheel of Fortune slide.)
• The middle class is facing biflation.
• Developed countries are sitting on unsustainable piles of debt.
• The possibility of civil unrest is rising in Europe given extremely high rates of unemployed youth, especially in Spain and Greece where youth unemployment recently passed 50% (not a typo).
• Apple’s chart looks just like Google’s did just as it topped out in 2007.
• “Austerity is guaranteed to lead to a weaker economy no matter where it takes place and the alternative, a continuation of debt-financed solutions – is even worse.”

If more debt-financed stimulus is not the answer, and austerity only leads to economic depression, what does Mr. Gundlach think the Fed should do? According to Josh:

Jeffrey says that the right thing to do is the hardest – let the debt clear and have a depression.  You could hear a salad fork drop when he says this.

But of course, we’ll never do this, he says.  So in the absence of letting the everything reboot, at the very least the Fed should “stop with the manipulation of markets.”

I found a lot of these insights very interesting, but of course, the Apple/natgas trade was the one that grabbed the most headlines. I’ve been tempted to dip into some natural gas from time to time, but have not pulled the trigger yet, as it just keeps falling. Let’s see how it acts on the next pullback after the current bounce. If it can hold the previous low, I think we’ll consider a small position. Mr. Gundlach did emphasize that these were longer-term trades, and I would concur.

How about shorting Apple? Mr. Gundlach may be proven right on that trade too, but I can’t bring myself to put any money on the table for that one. I enjoy the products too much to bet against them!

What about you? Any thoughts on the Apple/natural gas trade or any of the other ideas advanced by Jeff Gundlach?

Related posts:

1. Passive Investing and the Ostrich Effect
2. The Real January Effect

Markets have been subject to some April showers this year. Will they lead to May flowers? We’ll find out soon. In the meantime, check out some of the great articles I noticed across the web during the past month.

1. Creativity is often underestimated as a driver of economic growth. Flip Chart Fairy Tales asks Is There a Creativity Crisis? citing a post from Chris Dillow that observes that less innovation leads to lower GDP growth. Another article in The Globe and Mail pointed to Maria Montessori and her education model as a producer of creative individuals. Apparently, some pretty well-known innovators attended Montessori schools. (Anyone heard of a company called Google?) In a third, very short but excellent article, Seth Godin writes On Making a Ruckus in Your Industry.

2. Sheila Bair’s Washington Post article on how to Fix Income Inequality with $10 million Loans for Everyone was an eye-opening (and more-than-a-little-ironic) look at the mechanics of the Fed bailouts of large financial institutions and hedge funds. If you think this disdain for the financial sector stops at the northern U.S. border, think again. The Huffington Post published a Q&A with Bruce Livesey, Author of Thieves of Bay Street. Apparently, our banking system isn’t as squeaky clean as some would have us believe.

3. Market Watch presented the view of another author (Richard Duncan), who says that Capitalism Is Dead and Credit Is the New King. According to Mr. Duncan, attempts to unwind the credit-driven nature of our modern economy may be “cataclysmic.”

4. Do you handle money better or worse than your siblings? According to a new survey, Birth Order and Financial Personality are Linked.

5. The Spec took issue with GICs as the Ugly Stepsister. In a similar vein, Watson Inc. wondered Are There Any Safe Investments Anymore?

6. Science Daily had a really interesting article on how Consumerism and Its Antisocial Effects Can Be Turned On – or Off. Here’s a sample: “Money doesn’t buy happiness. Neither does materialism: Research shows that people who place a high value on wealth, status, and stuff are more depressed and anxious and less sociable than those who do not.” Makes sense to me.

7. Here’s a story on 5 Money Moves a Fed Follower Is Making. It’s about James Bianco and his contention that these days markets move on the actions of the Federal Reserve rather than economic or corporate fundamentals.

8.  Who knew a single food could be so important to protecting your brain? Psychology Today informs us that Fat Brains Need … Tomatoes.

9. Brain Pickings covered some advice from C.S. Lewis on the dangers of acting only out of a sense of duty. There are some really compelling quotes from letters he wrote to children who asked him questions.

10. In a guest post on Michael Hyatt’s blog, Justin Wise explains What Elementary School Taught Me about Personal Productivity and how you can apply it to your work or business.

I hope you found these articles informative. Please feel free to comment on them below!

Related posts:

1. 20 Cents from April 2010
2. 20 Cents from April 2011
3. 20 Cents from January 2012

Our attention is one of our most important assets. What we focus or attention on becomes our reality. The projects we focus on are the projects that get completed.

~ Leo Babauta, The Power of Less

Multitasking seems to be all the rage these days in spite of the evidence that it doesn’t really help us get more done. Instead, it just leaves us exhausted. Studies show that humans really aren’t capable of doing more than one thing at a time. When it looks like someone is performing two tasks simultaneously, they are actually just shifting attention rapidly back and forth between the them.

We can actually increase our productivity by trying to do less. That’s the message of Leo Babauta’s 2009 book The Power of Less: The Fine Art of Limiting Yourself to the Essential . . . In Business and in Life. It’s about choosing focus over diffusion, and single tasking over multitasking. By organizing and spending our attention wisely, we can accomplish just about anything we set our mind to achieving.

Mr. Babauta offers a system for organizing your priorities and accomplishing them one at a time. With today’s always-on everything, staying focused is more challenging than ever. Here’s a sampling of some of the ideas offered in The Power of Less:

1. One Goal System: Focus on one main goal at a time. Break it into smaller tasks and focus on each of those one at a time until you reach your goal.
2. Set Up a Simple Projects List: This consists of your top 3 projects. Projects can be completed within 1-4 weeks, as opposed to the One Goal, which is a longer term proposition. You could choose the 3 projects from different areas of your life, like work, home and personal.
3. On Deck List: projects waiting until you’ve finished your 3 simple projects
4. Clearly Defined Outcomes: Make sure projects and goals have a one-sentence, written description of what it means to accomplish them.
5. Focus On Completion and Avoid Distractions: I don’t know about you, but I get distracted easily by kids, noise, email, social media and stuff that just happens unexpectedly during the day. I’ve learned to manage distractions better and give myself some concrete, but realistic deadlines. I also cut back the number of essential tasks I want to complete each day to make room for the important things that seem to pop up each day.
6. Choose 3 MITs (Most Important Tasks) to Accomplish Each Day: Try to accomplish these tasks first. That way, no matter what surprises come your way, at least you’ve moved some of your projects closer to completion.
7. Make Morning &/or Evening Relaxation Routine: Set aside at least some time each day and week to do things you enjoy, plan your goals and tasks, and just gain some perspective: no work allowed!
8. Declutter: When your physical environment is disorganized and messy, your mental state usually follows suit. Periodically cleaning up, assessing and reorganizing your goals and systems can give you a truly fresh start. Mr. Babauta goes into how to set up a simple but essential filing system and maintain a clean desk. I still have yet to master the latter.
9. Batch Processing: Rather than answering your email/text messages every time they ping, checking social media regularly or getting distracted by a compelling headline, Mr. Babauta recommends taking care of all of these tasks at predetermined intervals. That way, you can stay connected on your terms and still accomplish your tasks. We all have a lot of inboxes these days, and it’s important to realize that we can let them fill up a bit as long as we empty them regularly.
10. Slow Down: Shifting attention and rushing through everything often leads us to feel like we’re not accomplishing very much, and yet we’re somehow still exhausted at the end of every day. Take some time to relax. Take a walk. Read a book for pleasure. Listen to some music. Play with your kids. Do nothing. Even when you’re working, take your time. You’ll feel better and probably still get more done. Dialing back the frenzy can be as easy as reminding yourself to slow down.

I haven’t done justice to the system Mr. Babauta lays out. It’s far more integrated than the 10 simple points above and it’s well worth reading The Power of Less to find out more. It’s a relatively quick read, although I can’t promise you’ll be able to implement all of these ideas quickly.

There’s plenty of flexibility in the model presented in The Power of Less, so you can easily adapt it to fit the demands of your own life circumstances. I don’t use the exact system in the book, but I’ve certainly incorporated many of the principles I learned and I’m actively working on improving in many of these areas. Change isn’t always easy and old habits can be hard to break. The good news is that once you establish more productive new habits, those will be hard to break too.

Do you find it more difficult to single task than you used to? Do you think less can be more?

Related posts:

1. Book Review: Your Life and Your Money
2. Book Review and Giveaway: The RESP Book
3. Book Review: Smart Tips for Estate Planning

What do most people do with their tax refunds?  They spend it of course!  It’s bonus money, fun money,

But in tighter economic times when all you hear is about high debt levels, low savings rates, a growing retirement gap and fear of inflation, could this be the year to do something fiscally responsible with your tax refund?

If you want to do something responsible with the money, what should you do with it?  Buy RRSPs?  Throw it against the mortgage? Pay off some credit cards?  What about starting a TFSA?

If you are prepared to be fiscally responsible, here are two strategies to determine the best course of action

Principles of Cashflow

The principles of cashflow deals with the mathematical effectiveness of cashflow.  If you have an extra dollar, what is the best use of that dollar? It does not matter if you have $10, $100,000 or more, the principles of cashflow simply suggests what gives you the best bang for your buck.  It’s important to keep in mind that everyone has unique circumstances and you should consult a financial advisor for a detailed review of your personal situation but here are some generalized rules of thumb:

1. Pay off high interest credit card debt first.  The credit card math will work against you every time especially if you are paying 18% or more in interest.  Paying down this debt is always a great place to start if you have extra money.  It’s also important that you have the discipline to NOT accumulate the debt again once you pay it down.
2. Look at the RRSPs first to see if they make sense.  One of the benefits of making a RRSP contribution is that you get a tax deduction.  The best way to see if the tax deduction benefits you, is to follow my ONE FORMULA approach to RRSPs – If your marginal tax rate (MTR) at the time of contribution is greater than your marginal tax rate at the time of withdrawal, then the RRSP will always give you a benefit.
3. Paying off non-deductible can be a great investment.   Just check out the math in this article – paying down debts. Basically paying down a 6% debt can be the the equivalent of earning 8.8% on a GIC.  Paying down non-deductible debt can be a great investment.  The higher the cost of interest, the better the investment.
4. Buy TFSAs.  One of the problems with TFSAs is the title has mislead a lot of people into putting their money into low earning savings accounts when there are lots of ways to invest TFSAs.   TFSAs have a lot of universal appeal so they could easily move up the list depending on your personal circumstances.

The Balanced Approach

Here at Balance Junkie, the theme is about finding balance and when it comes to extra money, the balanced approach refers to dividing up the money and doing many things with it including having some fun. Some personal finance pundits have called this the conscious spending plan.  It’s in fact, what I am teaching my kids about money.

When it comes to money I am teaching my kids that when you have money, there are 4 things you can do with it.  You can spend it, share it, saving it or invest it.

A conscious spending plan says you will consciously allocate your money according the plan whether it’s your money paycheques, a one time tax refund or a large inheritance.  You can set different spending plans for cashflow versus lump sum amounts.

Here’s an example I did with my kids.  I gave them $100 and asked them to allocate this money into 4 pots:  Spend, Save, Share and Invest.  They all did different things with the money but I then said this would be their spending plan where anytime they came into money, whether it was $20 from grandma and grandpa, or $5 from their allowance money from their summer lemonade stand, they would allocate the money in the same way everytime.

Although they are pretty young kids, I wonder why adults who are theoretically capable of make better, smarter and more prudent decisions don’t do the same thing.  Maybe this is the perfect balanced approach to dealing with a tax refund:  Spend some of it, save some of it, share some of it and invest some of it.

What do you do with your tax refund?  Any other great ideas to share with others?

No related posts.

There was a poll taken the other day showing that Colorado voters prefer having Eli Manning as the quarterback of the Denver Broncos over Tim Tebow. The poll states: “Democrats prefer Manning by 46 points, 60/14, while Republicans do by just a 7 point spread at 44/37. Every group of the electorate prefers Manning over Tebow except for ‘very conservative’ voters, who go for Tebow 53/28.”

There’s an important message for stock investors in these words.  Five important messages, actually.

1) People Are Nuts

It’s one thing to acknowledge that there are legitimate differences of opinion about whether Tim Tebow can be a winning quarterback in the NFL. It’s something else to note that people form their assessments re this question based on their political leanings. Democrats prefer Manning by 46 points while very conservative voters go for Tebow 53/28? Huh?

People are nuts.

This is an important investing insight. I often point out that stocks were priced at three times fair value in January 2000. This means that those who directed $9,000 to the purchase of stocks in that year obtained $3,000 worth of return-producing stock goodness and $6,000 worth of cotton-candy nothingness fated to be blown away in the wind sometime over the course of the next 10 years.

Many of my readers question whether it is reasonable to conclude that investors for a time got the stock price so wildly wrong. But look at that Tebow result. People are not logic-processing machines. Our emotions influence us. A lot.

2) People Sound Smart

We are nuts. But our craziness usually evidences itself in intelligent sorts of ways. This makes it hard to detect the nutty part.

If you asked the people who were polled why they favor Tebow or Manning, they would give plausible-sounding answers. The Manning supporters would note that even Tebow acknowledges that Manning has the far better passing mechanics. And that would seem to settle the matter. But, if you asked one of the Tebow supporters for his reasoning, he would point out that Manning missed an entire season due to injury and that Tebow is young enough to be capable of making huge progress in a single year. Listening to that side of the story would lead you to believe that the pro-Tebow case is equally credible or perhaps even more so.

But wait. We know these are not the real reasons why people are saying what they say. The poll shows that the explanations people give for liking Tebow or Manning are rationalizations. People decide for emotional reasons who to support and then turn on the brainpower to concoct explanations for those emotional beliefs that sound sensible.

When stocks are priced at three times fair value, there will be dozens of reasons put forward for why the price being set by the market is the proper one. Don’t believe any of it. It is always possible to come up with both plausible-sounding reasons for high prices and plausible-sounding reasons for low prices. Most investing analyses (including this one, to be sure) are so much hot air.

3) People Fool Themselves

When I point out how experts in this field mislead us as to the value of stocks at times of overvaluation, people often jump to the conclusion that I am accusing people of dishonesty. No! The conservatives really believe in their hearts that Tebow is the better quarterback. The liberals really believe in their hearts that the case for Manning is so strong as to be beyond dispute. People see what they want to see and they generally do not see too much beyond that.

Many people faulted the Madoff investors for falling for a Get Rich Quick scheme. I think we would be better to take a “there but for the grace of God” line re the matter. We all fall for all sorts of things all the time. And more often than not the people pulling us in fell for the same things before they tried to get us taken in too. We all think with our emotions. It’s just the way we are constructed.

4) People Are Biased

What do you think will happen if Manning has five great games to start out the next season and Tebow has five terrible ones (or the other way around)? Will that settle matters? You know it won’t. People who like Manning for emotional reasons will continue to like Manning for emotional reasons and people who like Tebow for emotional reasons will continue to like Tebow for emotional reasons. People will just concoct new rationalizations for believing what they want to believe. Facts rarely have much influence on human decision-making.

I believe that investors should change their stock allocations in response to big valuation swings. But I think it would be a good idea if every article I wrote had a message attached saying “Rob has been going with a zero stock allocation since 1996.” You know why? Someone with a zero stock allocation cannot possibly write without bias on any investing question. I’ve got an emotional stake in convincing people of one side of the story. That influences every word I write.

The same is true with those who speak from the other side of the table, of course. Most of the people we think of as “experts” in this field have connections to Wall Street. That means that they make money by selling stocks. That means that they are not capable of shooting entirely straight re any investing question.

They can try. But no one can fully overcome his biases. Why? No one can ever even fully see his own biases. We see other peoples’ biases, but  not our own.

5) People Are Fickle

I bet that poll would have showed very different results had it been taken during the time when Tebow was winning seven games straight in late-game comebacks. People can believe something very strongly one month and then believe something very different a few months later.

That’s why there are stocks crashes.

I noted above that people don’t change their minds when presented with facts. That’s because our decisions are generally rooted in emotion, not logic. But, while we can ignore fact after fact after fact for years, we can also make dramatic about-faces when we finally come to experience emotional desires to believe something different.

Stock prices usually head upward (with relatively insignificant dips mixed in) for 20 years and then head downward (with relatively insignificant upward moves mixed in) for 20 years. If investors were rational, it couldn’t happen like that.

That’s the pattern you would expect to see in a world in which most investors were motivated primarily by emotion. It takes a long time to change emotions, but, when they change, they change hard and remain changed for a long time.

Rob Bennett created The Investment Strategy Tester. His bio is here.

Related posts:

1. Stock Investing Is a Political Act
2. Is the Stock Market Rigged?
3. Stop Making Paper and Start Making Things: Bill Gross

As much as we love our long weekends, the longstanding complaint is gas prices will go up and the weather will be lousy.

True to Murphy’s law, gas prices jumped up prior to the Easter long weekend. We were on holidays driving south to Salt Lake City where prices in the US also jumped.  As we were driving, even I jumped on the bandwagon asking my wife why gasoline prices always went up before long weekends.  My wife replied “So they really go up before a long weekend?  How do you really know?  do you have some statistics?”

She shut me up pretty quick so when I got back, I decided to really see if this was a trend or just a reason to complain.

Finding data

The first step was to find data.  I came across The Kent Group, who provides a broad range of data, research, analysis, and consulting services to the downstream (refining and marketing) petroleum industry.

They have an amazing database of gasoline prices going back to 1987.  Using their data for average weekly retail prices including tax, I summarized data for the past 7 years based on my home city of Edmonton.

My five cents

You can interpret data different ways but here are some of my observations:

• When I looked at the data, I could not tell if prices increased prior to long weekends but I did notice that May and October seemed to have the highest gas prices in the year.
• Gas prices at the pump are highly volatile in the year.  Little price spikes and drops are a regular occurance.
• There is a distinct trend in rising gas prices over the years.

• When looking at average prices it looks like 2011 was the biggest absolute (16.5 cents) and percentage increase (18%)
• 2008 seemed to be a strange spike probably due to the world financial uncertainty

In some other data from a CBC article, the components of the pump price has changed and evolved over time as well.  10 years ago, the price of gas was 59.4 cents and here’s the breakdown of cost:

• 49% went to taxes
• 34% went to crude costs,
• 11% went to operating margin
• 6% went to marketing

10 years later in February 2012, the cost of gas was 127 cents.  Here’s some interesting changes to the breakdown:

• Although the percentage that goes to taxes decreased to 31%, the overall revenue still increased by almost 10 cents per litre
• Cost of crude has risen dramatically and represents the highest component of the price.  53% of the price results from the cost of crude which has tripled over the 10 years.
• The cost of crude seems to have the biggest influence over changing prices at the pump.

I have not tallied up the receipts for gasoline on our trip but I am certain the total cost of gas was well under $400 despite the spike in prices just prior to our departure.  In the end, I won’t complain about that considering flights for a family of 6 would have cost me over $3500.  With this perspective, I think gas was a bargain.

What do you think about the price of gasoline at the pumps?

Related posts:

1. Why Are Commodity Prices Rising? Let Me Count the Ways

Hello readers of Balance Junkie!

I am really excited to have a voice on this terrific site and offer my five cents from time to time.  I’ve admired Kim’s writing for quite some time now and I’m looking forward to working with her and Tom to make this site a destination of choice when it comes to life balance, money balance and economic balance.

About me

For those of you who don’t know me, my primary work is putting financial education programs in the workplace.  Companies large and small hire me to teach their employees about retirement, money, investing and other facets of personal finance.

Being in the financial education business, we don’t just education through our workshops but we also education through books, software, audio and video.

I am a best selling author of 5 books with three more coming out this year.  Feel free to check out my books on my personal website JimYih.com.

About Retire Happy Blog

Some of you may know me as the guy behind the award winning Retire Happy Blog where you can find good quality, timeless information on retirement, investing and personal finance.

I view blogging as a serious professional hobby.  I spend a lot of time educating others and that requires me to stay on top of current issues.  As a result, I do a lot of reading and learn which leads to writing.  Writing articles keep me current and sharp and it’s something I really enjoying doing.  I love expression and I sincerely love helping others find their path to more financial security, independence and freedom.

My Five Cents

As all of you know, Kim uses the phrase “My 2 cents” a lot.  In fact, the pen names she uses in the comments section is 2 cents.

Coincidentally, I use that phase a lot in my articles as a means to express and interject my personal thoughts on a particular topic.

Although it’s kind of fate to become business partners, I have decided to move to five cents.  It’s probably fitting not just because Kim uses “2 cents” but also given the eventual elimination of the penny and concerns over inflation.

All in all, I look forward to working with Kim and sharing My Five Cents from time to time.

Tomorrow, I will have my first official post on Balance Junkie talking about the volatility of gasoline prices.

Related posts:

1. 20 Cents from May 2010
2. 20 Cents from June 2010
3. 20 Cents from January 2010

I haven’t written a Bulls vs. Bears post in a while. Given the tremendous stock market run from the end of last year through the end of the first quarter of this year, it seems like a good time to assess the current position of the markets. I recently read two articles which, on the surface, appear to make inverse arguments.

One article says that stocks are the place to be even if the global economy slows. The other makes the case for historically low stock market returns over the next decade – whether the economy recovers or not. I think there may be more common ground here than a first glance would indicate. Let’s take a look at each argument and see if we can draw any conclusions.

The Bull Case

A weakening economy is never fun, but you shouldn’t necessarily run to the safety of fixed income. That could be more risky than stocks.

~ Fabrice Taylor

A Globe and Mail article by Fabrice Taylor explains Why Stocks Are Your Best Bet … Even If the Recovery Fizzles. Mr. Taylor says your investment approach will likely be determined by your view on interest rates. He thinks low rates will be with us for some time. His view is that recent improvements in economic data are a bit of a mirage, offering the following points as evidence:

• The U.S. unemployment rate has fallen, but much of that is due to a drop in the labour force participation rate.
• Any improvement  in the U.S. housing market is a result of strength in multi-family units and an increasing number of people renting due to a poor employment backdrop and stagnant income levels.
• The ECRI (Economic Cycle Research Institute) has a great track record and is sticking to its recession call.
• The European debt issue may be on the back burner, but it’s still simmering. That’s why the OECD is recommending a $1.3 trillion firewall.
• Demographics are working against most developed countries.

Given these economic headwinds, Mr. Taylor sees low interest rates sticking around. That means more paltry returns from fixed income and a continued migration to riskier assets like stocks. But he’s not recommending broad market indices. Rather, he suggests 3 alternatives:

1. Smaller dividend stocks
2. Broken stocks on the mend
3. Growth: try the wireless technology space.

As the opening quote for this section indicates, Mr. Taylor isn’t particularly sanguine about the global economic backdrop, but doesn’t see the fixed income markets as a great defensive play.

The Bear Case

Capitalism and free markets work, and America remains the most creative and innovative nation on the planet, but until policy makers and regulators wake up, it will be impossible to escape the long-term consequences of distorted markets, reckless bubble-seeking Fed Chairmen, repressively low interest rates that penalize saving and lower the bar for productive investment, a self-serving financial system, and bailouts that remove all consequences for misallocating capital that could otherwise create jobs and raise living standards.

~John Hussman

The bear case comes to us from John Hussman’s Weekly Market Comment: A False Sense of Security. This article is much longer, but well worth your time. I won’t be able to do it justice here, so I’ll just hit a few main points.

Like Mr. Taylor, Hussman is doubtful about an economic recovery, citing the recent “superficially positive data.” The article seeks to debunk two recent analyst memes:

1. Stocks are in a secular bull market.
2. The equity risk premium on stocks has never been higher.

The commentary kicks off with a thorough discussion of the difference between secular and cyclical trends. I write a lot about the idea that we’re currently in a secular bear market and I highly recommend reading this portion of the article if you’re interested in learning more. Hussman’s model, which has been remarkably accurate, projects 4% annual returns for the S&P 500 over the next 10 years. Have a look at the chart he includes:

(Click on chart for a closer look!)

The equity risk premium is the percent return stocks are priced to deliver over the “risk-free interest rate”, typically the 10-year U.S. Treasury rate. With equities priced to return about 4% annually over the next decade and the 10-Year Treasury yielding about 2%, the equity risk premium sits around 2%. Here are Mr. Hussman’s views on that:

When has the equity risk premium been as low as it is today? Prior to the late-1990′s bubble period, the estimated equity risk premium has been below 2% only during the two-year period leading up to the 1929 peak, between 1968-1972 (when the equity risk premium finally normalized as a result of the 1973-1974 market plunge), and briefly in 1987, before the market crash of that year. We know how each of these periods ended. The only real variation is in how long the preceding overvaluation was sustained.

Mr. Hussman also sees today’s historically high corporate profit margins as a direct result of policy interventions. Consequently, he thinks they’re vulnerable to a significant mean reversion. He also offers another informative chart comparing the ratio of corporate profits to GDP with the subsequent 5 year growth in profits. Suffice it to say that Hussman doesn’t see these inflated profit margins as a new normal.

A third chart attempts to explain why economic worries persist on Main Street while Wall Street is nearly giddy with optimism. It shows the ratio of wages to GDP in a virtual free fall over the past 40 years. Enough said.

Hussman sees unimpressive stock returns whether the economic data improves or not.

Conclusions?

While these two authors seem to be at odds on the surface, I was struck by the idea that their arguments are almost two sides of the same coin rather than two completely different positions. Both acknowledge that further economic weakness is a possibility, but by no means a foregone conclusion. Both note the effects of ultra-low interest rates. Both are cautious on broad indices like the S&P 500. Both advocate controlling risk using strategic asset allocation.

While Mr. Taylor offers a few ideas for equities that lie off the beaten path, Mr. Hussman tells us that his funds are currently hedged to reflect his cautious stance:

“Our primary risk estimates are now in the worst 0.5% of what we observe in historical data. We have increasingly used the word “warning” in our weekly comments for that reason.”

Each of us will, as always, approach the current environment differently according to our personal financial situation and strategic approach. Those who are already “all in” on equities will choose differently than those with very little exposure. Traders will react differently than long-term holders, although the latter may choose to rebalance soon if Mr. Hussman’s assessment of the current market as “overvalued, overbought, overbullish” eventually proves correct.

On the other hand, rebalancing doesn’t necessarily mean running for the hills, as Mr. Taylor points out. Depending on your time horizon, you don’t necessarily need to make huge changes to shift the risk profile of your portfolio. To each his or her own.

What are your thoughts on these two market views?

Related posts:

1. Bulls vs. Bears: Who’s Right?
2. Bulls vs. Bears: Q4 2011 Edition
3. Why the Economy Most Certainly Is Relevant to Investing