Coffee to Car Payments

Graham and Dodd Investing in the 21st Century

2010-03-08T10:39:58-06:00

A couple days ago, I posted a link to an interview with best-selling author, Phil Town. I've read his first book, Rule #1, at least half a dozen times. It is a great book that brings Graham & Dodd investing (Ben Graham was the Columbia professor who taught Warren Buffett how to invest.) into the 21st century. Phil shows how to use the internet to do in minutes what took days and weeks to do when Mr. Buffett was in his heyday.

I sat down with his second book, Payback Time, on Saturday afternoon and finished it Sunday morning. I found it a much easier read than the first book. If you're willing to invest the time to educate yourself on changing the way you think from buying stock to buying a piece of a business and then learn how to actually value that business, you'll do far better for yourself than any financial planner or fund manager could ever do.

The only thing you'll still need me for is your insurance needs.

"If you think education is expensive, try ignorance." ~ Derek Bok

"Payback Time: Making Big Money Is The Best Revenge"

2010-03-06T05:54:00-06:00

Phil Town, best-selling author of Rule #1, is interviewed on CNBC. He makes a great case for either educating yourself on how to invest or picking a broad-based, low-cost index fund. Watch the video here

Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing. ~ Warren Buffett

His new book, Payback Time, just came out last Tuesday. Definitely worth a read.

Financial Authors: Make Sure You're Reading What's Relevant to You.

2010-03-02T15:19:03-06:00

Cover via Amazon

A few days ago, Drew McLellan shared in this post how social media has changed his world. I thought I'd take a minute here to share how it's changed mine. What I find most interesting is how, when I syndicate my blog content onto Twitter and Facebook, the conversations go in seemingly divergent directions and then end up on a topic that I'd been wanting to get to but didn't know how.

A recent Facebook conversation started somewhere else and came around to the topic of financial authors and their target audience. For example, high income households already living comfortably within their means probably should ignore Suze Orman and Dave Ramsey lest they end up squandering their youth.

One the other hand, if you're waiting on your income tax refund to have the money to take a class on real estate investing based on the writings of Robert Kiyosaki, you may want to consider waiting until you've got a little more of a cushion. Don't run 'til you've learned to walk.

The one exception I will make is Spend 'Til the End: Raising Your Living Standard in Today's Economy and When You Retire by Laurence J. Kotlikoff and Scott Burns. This book is a must read for everyone. It is an economics-based method of financial planning that is based on finding and maintaining you highest possible standard of living.

Using their proprietary software, you will be able to determine if your are over-saving or under-saving, over-insured or under-insured, and how much or how little impact life and financial decisions will have on your standard of living.

There are only a handful of planners using this software. You can find a list by clicking here. There is also a stripped-down free version that you can try here to get a feel for the process.

Does Health Care Reform Really Take 2700 Pages? Seriously?!!

2010-02-26T10:59:30-06:00

This health care debate has been a "Top Priority" for over a year now and after a 7-hour summit yesterday to "git 'er done", it's still up in the air. Only thing we have to show for a year of debate is a 2700-page bill which I'm sure is laden with pork. If it does get passed, who knows what kind of problems will surface in 10 or 20 years if not sooner?

Last month, I laid out a simple six-step plan to fix health care. Why don't we scrap the 2700 pages and start over with a plan that works...make sure there's nothing missing...and pass the dang thing without regard for special interests?

On a lighter note, check out Health Care Reform, The Bobsled version. It a cute video that makes exactly the same point.

How Do We Fix Unemployment?

2010-02-25T10:02:29-06:00

Image via Wikipedia

This is a little timeout from the regular thread of conversation. However, I was watching the news this morning and this quote hit me between the eyes (and I'm paraphrasing a little because TV moves too fast and I don't have a DVR):

"The key to fixing unemployment is to make it possible for that person who has a dream and sits down at the kitchen table with their (spouse) and sketches it out on the back of a napkin to be able to see that dream come to fruition." ~ Mike Huckabee

If we want to stimulate the economy, should we be focused on big business on one hand and employees on the other when, right in the middle, is small business owners who still know what the "American Dream" is all about? They keep their heads down and plow ahead, create the most jobs, keep an eye on what's going on around them, seize opportunities as they arise but, they aren't waiting for someone to give them a bailout, a handout, a hand-up, or whatever else you want to call it. They just keep going.

This is why I love working with small business owners.

You May Not Need A Financial Planner

2010-02-24T15:48:48-06:00

Image via Wikipedia

The internet can be a very valuable tool but, it's also a dangerous place if it's used wrong. This is especially true when it comes to financial planning.

You see, there's financial planners and then there's personal finance bloggers, journalists, TV show hosts (I'll be giving you my thoughts on Suze Orman in the next week or two.) They all mean to be helpful but, they get paid to write, act, and entertain. Most have never sat down with a client and helped them put together a financial plan.

For some reason, they all seem to hate on financial planners. They eat, breathe, and sleep this stuff and probably read more than a lot of financial planners. They can probably manage their own financial plan without professional help. But they are forgetting something.

In the book Made to Stick, Chip & Dan Heath point out that "It's hard to remember what it's like to not know what know now." It's good for you to be educated and not follow your financial planner's instructions without questioning anything. In fact, no one should be following anybody. It should be a collaboration.

Think of your financial planner as an interpreter. You're learning a new language that they speak fluently.

Here's a final thought that was shared long before the internet existed.

"A lie can get halfway around the world before the truth can get it's boots on."

~Mark Twain.

Be careful out there.

Are You Forgetting Something?

2010-02-17T14:25:22-06:00

In my last post I talked about picking things that are highest priority and focusing on those things first. On the other hand, what you think is the highest priority may not be after all. If I were to ignore the details in designing my dream home, I could end up with something that was not what I imagined at all. It could be very disappointing indeed. I could end up with a ramshackle, thrown together place that I couldn't stand and I'd be scrambling to try and fix it.

That is why I like the Priority Planning Review as a tool to start putting together a plan. It's quick and easy and may remind you of something that you hadn't thought of that needs to be a little more of a priority. You don't want to find yourself scratching your head and wondering "Who took my money?"

Designing Your Dream Home: 3 Things You Can't Live Without

2010-02-15T09:10:00-06:00

If you could design your dream home but only got to pick 3 things, what would they be? I think I've got mine figured out.

#1 Heated Sidewalks and Driveways. Wouldn't it be cool to never have to shovel again no matter how much snow we got. The sidewalks and driveways would have a surface temperature of 50 degrees or so.
#2 Buffalo Grass. This low-growing grass can almost go without mowing...ever.
#3 One Sweet Kitchen. Just in case my last two things made me sound lazy. I would love nothing more than a kitchen where my friends could hang out while I cook up something amazing. While a couple of my recent posts were about simplicity and efficiency of cooking for one, I love busting out my cookbooks when I have company. Here's one from Buca di Beppo for Chicken Saltimbocca.=

When it comes to financial planning, it's important to be able to pick just a couple things that are the highest priority. In my example, notice that I don't even care what the house looks like, how many bedrooms, etc.? I've got 3 things that I want. Show me those 3 things and the rest can be added later.

Super Bowl XLIV? Wouldn't It Be Easier To Say Super Bowl 44?

2010-02-10T12:35:21-06:00

Image by Getty Images via Daylife

Gosh!! It's taken me a couple days to recover from the "Big Game" on Sunday. I'm a Colt's fan unless they're playing the Cowboys...gotta have an AFC and an NFC team. As the game played out, a few things stuck out:

"Always" and "Never" are really bad words in any context.

Every time the announcers quoted a statistic, one of the people I was watching the game with would say "There's another useless statistic." She was right. What counts is what's happening today.

"Peyton can't win the big game." reminds me of Benjamin Graham's analogy of Mr. Market. Mr. Market is completely irrational. In sports, he'd be what you'd call a bandwagon fan. Ask Peyton. He's already looking forward to the first game of the next preseason. If you know the underlying value of what you have, it makes it much easier to ride out the bumps in the road.

Hindsight is overrated: It'd be easy to look back on the game and narrow the outcome down to 3 key plays: Reggie Wayne's dropped pass, Peyton's interception, or the Saints' onside kick to start the second half. Every fan goes through this when their team loses. If only a few key plays had gone the other way!...but they didn't. This is like looking at the market in the rear view mirror...coulda', shoulda', woulda'. What counts is what you do next.

Making Your "Shopping List"

2010-02-08T13:54:39-06:00

In my last post, I talked about meal planning and financial planning. Now that you have your meal plan, it's time to make a list. First, you decide what it is you need to prepare all the meals for the week. Next, you check your pantry, refrigerator, etc. to see what you already have on hand. Cross those things off the list. Now we have our shopping list.

Just as you're getting ready to head to the store, the phone rings. Your friend who was expecting has just delivered a beautiful, healthy baby. You're excited and you want to dash up to the hospital to see the new cherub. But wait, need to get a card and a gift. You immediately shift gears. Your top priority is what you need to prepare tonight's dinner and still have time to see the baby. The rest of the list can wait 'til tomorrow. See how this changes things.

The challenge with comprehensive financial planning is that you may not be able to do it all at once. You need an efficient method to determine what should be your top priority and also to bring to your attention things you may have overlooked. For some time now, I have used a tool called the Priority Planning Review. It only takes about 15 minutes to complete, only asks general questions, and allows you to determine what to focus on first. Then we do that one thing. Once it's handled, on to the next. This way, the financial planning process isn't so daunting that it gets pushed to the back burner indefinitely.

Financial Planning Not All That Different From Meal Planning

2010-02-05T12:33:28-06:00

Image via Wikipedia

Think about how you typically plan your meals for a week. First you decide what you want to make each night. Now I'm a bachelor and cooking for one. For me, I have a basic structure for each meal. It's meat, carbs, and a vegetable. and I don't want any leftovers because I probably won't eat them. Therefore, all of my cookbooks stay in the cupboard because most of the recipes are designed to feed 2-6 people. I bought a 12 pound bag of rice and several flavors of Mrs. Dash. So, the carbs pretty much taken care of for at least a year aside from the occasional potato here and there because I'm sick of rice. Each week when I go to the store I'll buy3 or 4 kinds of meat. Pork chops, a steak, some kind of fish, maybe even some chicken breasts. I keep four or five different kinds of frozen vegetables around. Remember, I'm cooking for one and I'm not picky enough to get fresh vegetables and prepare them. I'll grab some milk and some juice and I'm out the door for under $25.

When it's time to cook dinner, I throw on the rice because it takes 20 minutes. At around 14 minutes I'll throw the meat on and season it. At 7 minutes, time to flip the meat. At 5 minutes, start the veggies. Everything gets done at the same time and dinner is served. It's a very simple routine. I have enough variety to go probably 3 weeks without eating exactly the same meal. This works for me. If I do want to change things up a bit, I go out and eat and let someone else do the work. My point is that I have a basic plan. A framework that may include some variations. This is not much different than having a good financial plan and then basing all of your decisions on your basic plan. "Do I need this insurance? or "Should I make this investment?" or "Can I really afford this vacation?" or "Do I really need a new car this year or can it wait?" All of these decisions become easier to make when viewed through the lens of a plan that works for you.

One other parallel I might point out is that I'm a bachelor, as I said, and my plan probably wouldn't work for a family with children. This is no different than a financial plan. Everyone is different and every plan should be too.

Monday, I think I'll talk about making a list.

What is a Rule of Thumb?

2010-02-03T08:30:21-06:00

The exact origin of the phrase "rule of thumb" is uncertain. There's the mostly fictional medieval legend that a man was allowed to beat his wife so long as he used a stick no thicker than his thumb. Another suggestion is that, in many languages, the words used for "thumb" and "inch" are either the same word or two very similar words. This interpretation would assume that everyone's thumb is an inch long or very close to it.

The one that got my attention is that in history, wood workers -many of them very skilled, mind you- used their thumbs as a measuring device "cementing its modern use as an imprecise yet reliable and convenient standard." They did this due to the lack of the more modern and very precise tools that wood workers used today. So, my question to you is this: Do you want to build your financial dreams around something that is "imprecise yet reliable and convenient"? What if there are new tools available to allow you to be precise? Wouldn't you rather rely on those tools instead of "everyone's thumb is an inch long or thereabouts"?

A Brief History of Financial Planning

2010-02-01T08:00:00-06:00

Image via Wikipedia

Coming out of the Great Depression, our nation experienced 5 years of what could be called nothing less than a booming recovery. From 1932-1937, the market averaged a whopping 38.7% annualized return based on the chart shown here.

Then things slowed down. For the next 12 years, 1937-1949, virtually nothing happened. Average loss over this time period was -.8%. You weren't losing very much but, you weren't making much. Dissapointing but livable to those with memories of the Depression still pretty fresh in their minds.

Then the worm turned. From 1949-1968, the average annualized return was 15.3% per year. Here we go, boys and girls!!!

Then the unthinkable happened...the beginning of what looked like a bear market. Not willing to let people flounder and panic, and realizing that the planning needs of families were becoming more and more complex, a group of 13 individuals, led by Loren Dunton, met in the Chicago O'Hare airport and laid the groundwork for the Society for Financial Counseling. This led to the formation of the College for Financial Planning which produced it's first graduating class in 1973.

1974 was a pretty bad year and these fledgling graduates had to find a way to reassure their clients that things were going to be okay. But as things continued to stay the same, many were getting restless. They weren't seeing the results that they had gotten all by themselves without the help of these "professionals" In fact, from 1968-1982, the market returned an average of -3%.

Not sure what to do, we had to start talking about staying the course...over the long term the market averages x%...etc... The only reassurance left now was rules of thumb. Rules of thumb are going to be a big topic in future posts but this one is getting a little long. In fact, up next, I'll be talking about long-term averages, and rules of thumb.

Should I Stay or Should I go?

2010-01-22T10:36:03-06:00

The recent financial crisis may have left you trying to figure out how to revitalize your retirement savings. Should you stay put or try re-allocating a portion of your assets? Let’s take a look at two different scenarios and see why now maybe the ideal opportunity to re-evaluate your retirement strategy. Get the scoop here

Health Care Reform...On the Back of a Napkin

2010-01-07T06:48:26-06:00

Image by SavaTheAggie via Flickr

OK gang, I hope this doesn't sound like a rant but, I'd like to share with you a 6-step program that could fix health care. I've thought about it a lot and here's what I came up with:

No pre-existing conditions. Granted, this would drive up costs but bear with me until the end of this post. I'll address that later. Here are a couple examples from my experience as an agent:

I had a client who got hit in the nose during a basketball game and had to go to the ER because his nose wouldn't stop bleeding. When I submitted an application for health insurance, they put a rider on his entire upper respiratory system. Really? He was healthy except for getting hit in the nose.

Another client: 44 years old...had surgery when he was 2 to correct a lazy eye. Insurance company put a rider on all diseases of the eyes. What if he developed glaucoma totally unrelated to the surgery when he was a baby?

Young Invincibles: Yes. It's the ever-contoversial heathcare mandate. It may seem a little socialist on the surface but, I'll get to that in a minute. There needs to be a meaningful penalty for not having health insurance. The young invincibles (age 20-29) go without coverage until they actually need it. Mandating that they maintain coverage would drive the cost of coverage back down.

Why is this important? Unlike home and auto insurance where there is a mandate and a meaningful penalty, doctors and hospitals are bound by the Hippocratic Oath which basically requires them to provide treatment and save lives and worry about the money later. The cost of the uninsured gets passed on to you and I whether we see it or not in the form of escalating health care costs.

Get rid of group plans. This could easily be replaced with employer subsidies for having a qualified plan. Group plans are the problem and here's why: Let's say you have a pre-existing condition. You take a job that you really don't like just to have access to the benefits. Group plans do not have any exclusions for pre-existing conditions. Doing this would also have the side benefit of allowing smaller companies to compete with the big boys.

No more pooling. This is a common practice in the individual market. Every couple years, an insurance company starts a new pool. All the healthy people can underwrite into the new pool and the sick people are stuck in the old pool and get their premiums jacked out of sight. But they have no choice. They're stuck.

Flat commisions for agents. Now I'm an insurance agent but, I've always said that the main problem with health insurance is agents who only sell health insurance. If the commission received is a percentage of premium, what is my incentive to sell you a $50 plan when I can sell you a $300 plan. I think agents should receive the same commission no matter which plan they sell. For example: I'm a 36-year old smoker and pay $63.55/month for pretty decent coverage. I could pay north of $300/month but why? I'm pretty healthy. Flat commissions would incent agents everywhere to show you all of your options.

Wellness Incentives. Here's where I'll deal with the socialist thing. The thought may have crossed your mind "I take good care of myself. I work out...maintain a healthy weight, etc. Why should I have to pay for someone else who abuses their body on a daily basis and is a higher risk than I am?" Here's the answer. Insurance companies offer a "rack rate". That is the starting price for everyone. Then you would have incentives to maintain a healthy weight, cholesterol level, blood pressure, etc. You would be rewarded for getting regular checkups to monitor various risk factors.

Now, while I'm really proud of my plan, keep in mind that no one part would work without the other five. It has to happen simultaneously. I'm not sure something so simple would ever make it through Congress.

Honey, Make Me a List.

2009-09-24T14:49:17-05:00

Before I took Sheri to the airport on Tuesday, she asked if I wanted her to make me a list of the things I needed to do. I said "Sure!" Here's what she gave me:

"Plain chewy in the morning" This was for the dog. A chewy is a rawhide treat.
"Flavored chewy in the evening" Didn't know. Good tip.
"Put squirrel in garbage on Friday (garbage day). It's between the house and the garage." Okay. Dead squirrel from front yard goes in the garbage on garbage day. Got it.
"Empty dehumidifier 2X/day." Oops! Better go do that.
"Eat something." Cool! She still cares about me.
"Eat tomatoes." We've got an overload of tomatoes on the counter from friends.

Pretty detailed list. Huh? She thought of everything. Wait a sec! She didn't tell me to feed or water the dog. Should I do that? She's gone for 5 days. What's my point? In the age of the internet, it's great that people do enough research to have their own informed ideas about financial planning. But, if your financial planner asks you a few extra questions, don't worry about what he's trying to sell you. He's just doing his job. In my case, had I followed Sheri's list to the letter, the dog might be dead but hey, at least the squirrel got in the garbage without stinking up the container and the basement smells nice. OK. Gotta go mow the lawn. That wasn't on the list either.

A Trip to the Airport

2009-09-23T13:45:56-05:00

Yesterday I was taking Sheri to the airport. She's spending a few days in "The Big Apple" with four of her girlfriends. Her flight was leaving at 8:20. Since the Des Moines airport is relatively easy to navigate, we figured we'd be good if she got there at 7:30. Since we live less than five miles from the airport, we left the house at 7:10. After all, it's a 10-minute drive but it was rush hour. We pull to the end of the driveway and "Bam! There's a crane truck parked right in the middle of our street on one end and, the other end is closed (big sewer project...long story). I immediately begin to weigh the options. Do I drive up on the unfinished sidewalk to get around this thing? Can I pull into my neighbor's driveway and then cut across the grass. Neither of these seemed to be an option because it had rained hard the day before and, I might get stuck in the mud. Oh wait. I could go home and get the Jeep because then I wouldn't have to worry about the mud. Sheri, meanwhile, went and asked the crane operator how long they were going to be. "5-10 minutes" was the reply. OK. problem solved. We wait and then we're on our way. We'd already planned and extra 10 minutes for the unexpected.

Once the crane moved, Sheri says "Now, I know this is against your nature but, I need you to drive like a madman." Out of sheer habit, I say "Yes Dear." and then proceed to drive the speed limit. I'm doing 40 miles an hour down the road and calculating in my head that if I do 50, I could shave about a minute off the trip. So, we're going along and Sheri says "You just got passed by an old, white-haired man." "Yes," I replied "but the one sure way to miss your flight is for me to get a speeding ticket." So I kept going 40 and bottom line: She made her flight.

Now. What's my point? Don't be influenced by outside forces when it comes to your money. The old, white-haired guy passed me more than once. So, that means, at some point, I passed him. Focus on the plan. My goal was to get Sheri to the airport on time without taking unnecessary risks. Guess what? It worked! The crane, Sheri's advice to "drive like a madman", and the old white-haired guy were merely distractions from my ultimate goal.

Too Many Cooks In Your Retirement "Soup"?

2009-09-22T13:35:59-05:00

If I asked you to give the tagline for Timex, could you? Probably. But that was two taglines ago.

Just came across this post from Drew McLellan. For those two people who don't know Drew, he's the guy who, in his own words, "gets branding and marketing and he desperately wants you to get it too" The post is about Timex changing their tried and true tagline, "Takes a licking and keeps on ticking" to "Timex. Life is ticking." all because some new guy came in and said that he could do better. That guy's since been fired and so has the tagline. Now it's "Timex. Be there now." "Be there now?" Can't any watch do that? Heck, my cell phone can do that. So can the clock in my car. What's so special about that?

I guess what hit me immediately is that this is what so many people do with their money. They sit down with one financial planner and put together a plan. Things are going according to plan and then they go to a seminar. Maybe it's because they're unhappy or maybe it's just the free meal. Then they switch gears and go with the new guy. That doesn't work out. So, they go to another seminar...you get the picture? What happens is that they end up with a shotgun approach to financial planning. They've got duplications and ommissions everywhere. Odds are that they end going up back to the original guy who put together a plan and ask him to sort it out. Someone once said (I wish I could remember who. It's buried somewhere in the 500+ pages of the latest version of "The Intelligent Investor". So, most likely, it was Benjamin Graham.) "A lot of bad advice is given free." If you've got a plan that's working for you, one that can, in fact, "take a licking", stick with it. These are confusing times but, a plan is a plan is a plan.

Too Many Opinions About Health Insurance

2009-07-20T14:27:48-05:00

A couple weeks ago, I walked into the doctor's office. I presented my insurance card and started filling out all the paperwork. The girl behind the desk ran my insurance card and said "What?!! You only get 3 office visits per year and then you have to pay your deductible?" I said "Yes, but I pay about 65 bucks a month vs. the $235 a month I could be paying for the "Cadillac" plan. Plus, this is the first time in 10 years I've been to the doctor for anything other than a physical and those are covered under my plan as well. So let's see...$235-$65 = $170/month I'm saving. Over 10 years that comes to $20,400. And the worst that can happen is I end up in the hospital, at which point, my maximum out of pocket cost is 5 grand. Yeah, I think I'll just pay my $30 copay today and keep my "right-sized" health insurance. Now, if I had a family with children, I may consider a little bit richer plan.
I guess my point is that taking insurance advice from the desk clerk is a little like getting financial advice at a backyard barbeque. Everyone has an opinion (often valid) but, you've got to make sure that your plans align with your goals and that you've got a professional who's got your back.

5 Handy Excuses You Can Use For Not Saving For Retirement

2009-05-22T09:08:42-05:00

I've even sorted them by age to make it easier for you.

Ages 21-30
"I'm just getting started in life!"

Ages 30-45
"I've got a growing family on my hands!"

Ages 45-55
"I have two children in college!"

Ages 55-65
"Things aren't working out the way I thought they would!"

Ages 65-70
"It's too late!"