Save and Conquer

For anyone who has an investment fund, be it a retirement account like an IRA or 401(k), or investments in a taxable account, there’s a very interesting short article at Vanguard’s website about how much investment fees accumulate over time. One example is that a fee of 1% will have cost you more than 25% of your total investment after 30 years.

Stopping the silent killer of returns

The annual fees are generally given as the expense ratio (ER) of the fund. Many actively managed mutual funds have an ER of around 1%. Most index funds and ETFs have ERs of 0.1% or less. The Vanguard article was a real eye opener.

The weighted average ER for all holdings in my wife’s and my combined portfolio is 0.12%. I would like it to be lower, but the only bond funds in our 401(k) have ERs of 0.45% and 0.46%. Still, 0.12% is much better than the typical actively-managed mutual fund ER, which averaged 1.12% in 2012.

The equation from the Vanguard article shows that after 30 years with an ER of 0.12%, we will have only paid 3.53% of our total accumulated investment value to the brokerage firms, rather than 28.4% from an ER of 1.12%.

I would rather keep more of our own money than let the brokerage firms have it. Just something to keep in mind.

I started Save and Conquer a little over a year ago. The first post was Are we headed into recession? depression?

As we now know, we were already in a recession. Hopefully we will not get to the depression.

During the past year I have written about investing, frugal living, work, and the various categories you see in the list to the right. I have written 312 posts on personal finance and frugality. (OK, I had help as several posts were written by my wife and other guest bloggers. Thanks very much for those.)

Mostly, my posts have all boiled down to

• spend less money than you earn
• have an emergency fund
• maximize tax-sheltered savings
• use credit cards only if you pay off the balance each month
• mortgage payments should be less than a third of your take home pay
• watch the macro-economy for investment position hints
• diversify your investments
• pay your bills on time
• give to those less fortunate than you
• try to have fun

That’s pretty much it. Personal finance is not rocket science. You don’t need a degree in economics. Sure, there are lots of specific ways to save, and various financial pitfalls to watch out for. You can get what you need, however, by reading.

You can get good advice at sites like the Boglehead’s Wiki, How Stuff Works, Investopedia, AAII, AARP, Personal Finance News, pfblogs.org, Personal Finance Buzz, Frugal Hacks, Money Hackers Network, Festival of Frugality, and the Carnival of Personal Finance.

These sites, as well as linked sites within these sites, are continually being updated with content that are more than any one person could ever read.

With that, I am signing off. It has been an interesting year, but I am growing tired of writing about personal finance. It has become repetitive to me and probably to you. If you stumble on this blog, go back and read some of the early stuff. Those are the posts I am most proud of.

I plan to spend more time working on things that help keep the lights on. Plus, I want to work at updating our family blog.

Thank you very much for visiting. I hope it has been enjoyable, and that perhaps you picked up some useful tips along the way.

As Douglas Adams put it, “So long, and thanks for all the fish.”

I just spent 2 hours watching The Ascent of Money on pbs.org. From the website

One week before a new President who campaigned on a promise to fix the economy takes office, public media provider WNET.ORG is putting the meaning of money into context – where it came from, where it goes, and why it has always been (and always will be) the fulcrum of civilization. THE ASCENT OF MONEY, a two-hour documentary based on the newly-released book The Ascent of Money: A Financial History of the World (Penguin Group USA), will premiere on Tuesday, January 13 at 9 p.m. (ET) on PBS (check local listings). The film is written and presented by the bestselling author, economist, historian, and Harvard professor Niall Ferguson. An expanded, four-hour version of THE ASCENT OF MONEY will air on PBS later in 2009.

I love history, and this documentary on money, lending, stocks, bonds, bubbles, booms, and busts is extraordinary. Of course PBS also has the good Frontline series that often has good personal finance topics. Here is a recent episode titled, Secret History of the Credit Card.

Controller John Chiang announced last Friday that California will suspend tax refunds, welfare checks, student grants and other payments owed to Californians starting February 1. The suspended payments include $2 billion in tax refunds; $300 million for Welfare which include the elderly, blind and disabled; and $13 million in grants for college students.

My wife and I will not be getting a state tax refund this year anyway, but suspension of these payments are going to hurt a lot of people in California. Not only the recipients, but the second tier people such as landlords who may not get rental payments will be hurt.  Some cities are stepping in to pay Welfare, but they cannot do that for long.

The word is that California will issue IOUs for these programs in March. This happened before in 1992 when Pete Wilson and the legislature battled over the budget for 61 days into the fiscal year. It was not good for state workers back then.

California has also stopped payments of bond money for more than 5,300 public-works projects, although it turns out that some will not be stopped because they are nearly complete. Obviously, many of the people working on these projects will be laid off.

The problem is the state government. When times were good and tax revenues were flowing, they spent all the money we had and then some. Gotta keep those constituents happy, you know. Now that revenues are down due to job losses and foreclosures, the government is so deep in the red that they do not know what to do.

Governor Schwarzenegger, wants tax increases, spending cuts to relax some environmental rules, and allow private companies to do government construction. Democrats want tax increases, but less spending cuts. Republicans want spending cut and no tax increases.

I agree with the Governor, both tax increases and spending cuts are necessary. The trouble is, it takes a two-thirds majority to pass a tax increase. I don’t like paying high taxes, and I grumble every time I look at my pay stub, but I also don’t like seeing neighbors out of work, schools out of money, roads crumble, and poor people going hungry. Get ready for another leg down in the market and economy if the state legislators cannot come together on this soon.

Our article, Emergency Fund by HELOC – Bad Idea, was listed in the Money Hacks Carnival #47. There were lots of links in the carnival. Some I especially liked were

The Key to Successful Negotiating at Free Money Finance gives some good examples of “walk away power.” I’ve written about the art of haggling in the past. Walk away power is the best tool in your arsenal.

How to Not Pay Retail For Anything at the Strump lists four ways to avoid paying retail. Besides the ways posted at the Strump, I can also think of using on-line resources to find coupons and checkout codes.

Mastering Frugal Living- Becoming More Self-Sufficient at Think Your Way to Wealth. There is a new trend of people going back to doing things themselves. People are mowing their own lawns, walking their own dogs, washing their own cars. There is an article at the New York Times that points out that the return to DIY does have a downside as far as the economy is concerned. That is unfortunate, but we need to return to the days of more self sufficiency.

How To Live The Life Of Your Dreams (Visual Guide) at the Shark Investor is a fun graphic.

We have an old stereo cabinet that we no longer need. It was a hand-me-down from my wife’s sister. It looked kind of sad when we got it, but I refinished it and we had our stereo system in it in the family room for around 8 years. It still looks good, but it was usurped by a used computer desk that we bought to house our son’s computer. We want him to be adept at using the computer, but we also want to supervise his use. Our stereo also moved into the computer desk.

Anyway, we now have an empty stereo cabinet sitting in a corner of our family room waiting to find a new home. We advertised on Craig’s List last Summer. No takers. Apparently the $40 we were asking was too much. We tried again at $20. Nothing.

We then mentioned at work that the first person to take it away gets it. (I have gotten rid of other furniture this way.) No takers.

It looks too nice to throw away. I hate to waste things. Then again, it is doing nothing but taking up space in our house, which means we are wasting space.

Anybody want a nice stereo cabinet, cheap?

Update: My wife listed it in FreeSaver Friday night and it is now gone. A local woman said her son, who is a college student could use it. We loaded it in her RAV4 and off she went.

Steve Jobs’ poor health has been in the news a lot lately. Rumors are rampant as to the cause of his weight loss. I hope he has not had a recurrence of cancer, but even if he has, he deserves his privacy.

He has handed management of the company over to a competent person. Tim Cook is taking over the day-to-day operations at Apple. Mr. Cook looks like he is a great manager with vast experience. Unfortunately, I am not so sure he will be a good replacement for Jobs. From Apple’s web site,

Timothy D. Cook is Apple’s chief operating officer and reports to Apple’s CEO. Cook is responsible for all of the company’s worldwide sales and operations, including end-to-end management of Apple’s supply chain, sales activities, and service and support in all markets and countries. He also heads Apple’s Macintosh division and plays a key role in the continued development of strategic reseller and supplier relationships, ensuring flexibility in response to an increasingly demanding marketplace.

Before joining Apple, Cook was vice president of Corporate Materials for Compaq and was responsible for procuring and managing all of Compaq’s product inventory. Previous to his work at Compaq, Cook was the chief operating officer of the Reseller Division at Intelligent Electronics.

Similar to the situation at Apple, one of the chief scientists at our company has been having worse health lately. He checked himself into the hospital a couple months ago. The only way anyone found out about it was that he could not drive himself to the hospital and asked a co-worker for a ride.

He has seemed well for the past several months. I have been working closely with him on a job since before Christmas. We had a meeting with the customer Wednesday afternoon. He seemed fine then. I have now found out that after the meeting he felt extremely ill and went home. He is a friend and I am sorry to see him sick. I very much hope he has not developed a chronic illness.

He and his wife also dropped news at the Christmas party that he was going to retire in May. That is good news for them, but it will be bad for our company. He is one of those “big fish” that brings in multi-million dollar contracts. He recently wrote a proposal worth over $2 million that we will probably win. I wonder who will run that job if he is gone.

There is another PhD who has been working closely with him on that sort of work, but I am not sure that person is up to the task of running multi-million dollar jobs. He may be able to handle that job, but he has not been able to land the big contracts.

In a couple more months the chief scientist will have to start the process of passing his work to others. I hope we have someone capable of taking up his baton.

It was my turn to take our son to school Tuesday morning. First thing in the morning, I put the trash can out at the curb. I fixed our son his breakfast and lunch, checked on the class snack my wife had prepared the night before, took my shower, got dressed, and got my laptop packed up for work.

We put on jackets, I handed our son his lunch, grabbed my computer, his class snack, and we headed out to the car. Our son’s school is 3.4 miles from our house. It takes about 15 minutes to get there. We parked down the street from the school and walked to his class. He had his lunch and I had the cooler containing the snacks.

That’s when we saw what had been forgotten. All the other kids had their weekly homework assignments in hand. We also hadn’t brought our son’s study book for his chess class that he has after school on Tuesdays. I felt bad seeing the crestfallen look on our son’s face. He was not doing his usual cavorting with classmates before the bell, but just stood in line looking at his shoes.

He said we forgot his homework. I reminded him that he had forgotten it, but I did not rub it in. (It had been placed on the coffee table next to the front door, ready to go.) I told him I thought it would be OK if he turned his homework in late just this once.

The bell rang shortly after that, plus I had to get to work. There was not time to go back home for the homework. He asked if I would have his mother bring it later in the day when she came to pick him up. I told him I would tell her about it.

His teacher only collects homework once a week. He did a good job all week long getting his assignments done every day, but remembering to turn it in on time is the final step that he has to carry out. He accepted the responsibility after I reminded him.

My wife did not bring his homework because it would not have the same learning value if she did. Not to mention that the 2nd grade teacher is typically gone by the time she picks our son up from his chess class.

My wife suggested that we print a “typical” weekly schedule for our son and stick it on the inside of the front door to help him remember that Tuesday is the day to bring his homework and chess book to school, Friday is the day to bring his library books, along with other weekly reminders. Sounds like a good idea to me.

I think I can safely say that our son will not forget his homework next Tuesday.

My wife and I do our best to help our son get ahead every way we can. Sometimes that means that we let him fall down. We have taught him that even though he loses a game, he should thank the person who beat him for taking the time to play with him. We try to make sure that he has many more happy times than sad ones, but we do not overly shield him from the sad ones.

We also make sure that he knows that practice may not make him perfect, but that it will help him to improve.

A paper published in 2008 by GreenBerger, et. al., titled, “Self-Entitled College Students: Contributions of Personality, Parenting, and Motivational Factors,” examines the attitudes of college students toward entitlement. There are some pretty interesting attitudes that many students seem to have in higher education.

From the abstract

Anecdotal evidence suggests an increase in entitled attitudes and behaviors of youth in school and college settings. Using a newly developed scale to assess “academic entitlement” (AE), a construct that includes expectations of high grades for modest effort and demanding attitudes towards teachers, this research is the first to investigate the phenomenon systematically.

Two-thirds of the 839 students polled, age range 18-25 years, said their professors should give them special consideration if they explained they were working hard. More than a third expected to earn a B because they completed most of the reading and attended class. Just under a third thought that teachers gave them lower grades on assignments and exams than they deserved. A third also felt that professors should schedule final exams around their vacations.

I suppose much of their attitude of entitlement comes from lax high schools that are concerned with getting their students to pass standardized tests. It also seems to come from our current society where everyone is supposed to be equally capable. If that is the case, then personal failings must have some outside cause: teacher is not good enough, society is not good enough, parents are not good enough.

Employers want energetic, smart workers. They do not want workers with unreasonably high expectations of entitlement. I just hope that before these students graduate, they find out that grading on a curve is fair, that the real world is competitive, and that they will always be compared to their peers.

There was an interesting series of studies written for the Journal of Experimental Social Psychology by two researchers at Stanford University. The study was called Money can’t buy love: Asymmetric beliefs about gift price and feelings of appreciation. (Warning, the full article costs $31.50.)

The article by Francis J. Flynn and Gabrielle S. Adams backs up the belief that the price of a gift does not always indicate its value. They say that gift givers often think that an expensive gift will be appreciated more than a less expensive one. Gift receivers, however, typically don’t appreciate a gift based on its price.

The interesting thing from the study is that we are all gift givers as well as receivers. As gift receivers, we place the most value on gifts that are personal and have emotional meaning for us. Why is it then, that as gift givers, we often feel that a gift will not be appreciated unless we buy the best?

This is not to say that gift givers who spend a lot have their heart in the wrong place. According to the article, givers spend more on a gift to impress a recipient with their caring, not their cash. Recipients, however, preferred gifts that they really needed or that had special personal meaning, regardless of price.

In my younger days, I envied the lavish gifts that other kids got. Every now and then, a kid in high school would show up in a brand new car that their parents bought them. I used my paper route money to buy my first vehicle.

There have been expensive gifts from my parents that I will always remember, but the gift I remember most was the gift of time. Occasionally my father would take me fishing from a row boat for an entire day. Even though I have 3 brothers, he spent all his time that day with me. (He did the same for my other brothers at other times.)

This past Christmas I got an awesome gift from my son. He painted “Best Dad Ever” on a blue t-shirt. Obviously, this was a team effort from him and my wife. I appreciate that present.

So, save your money. Expensive gifts may be as easily forgotten as cheap ones. The gifts that will be appreciated and remembered are the ones that are not necessarily expensive, but that fulfill a need or have personal meaning.