We Dodged a Bullet: Extremists Failed to Privatize Social Security

The stock market, like any other market, goes through cycles of activity. A secular bear market is a long period of time in which prices stagnate or decline and investors suffer punishing losses from which they might never recover. Such secular bear markets can last as long as 25 years! Since the mid 1990's, Washington extremists have been pushing the idea of privatizing Social Security. In this endeavor, they have shown themselves to be ignorant of - or maliciously indifferent to - secular stock market trends. Up to now, they have been unsuccessful in privatizing Social Security so as to enrich Wall Street. A Marketplace.org commentator reflects on their failure and says,

The best thing to have happened during the Bush administration is something that did not happen.

Listening is more enjoyable! Read if you must!

Time to Buy Bonds Before Rates Drop? See Treasury Direct

For safety of your principal and protection against inflation, I Bonds from the U. S. Treasury are an excellent investment. They pay interest in two parts: A Fixed Rate, which lasts for the life of your bond, and an Inflation Rate, which is adjusted every six months to reflect inflation. If you open a Treasury Direct account, you can buy $5000 worth of these bonds for yourself, linked to your Social Security Number, and for others such as spouse or children. We will consider the advantages of Treasury Direct in more detail later. That said, you might not want to wait for that discussion before opening an account. The rates will change at the end of April. If you have ever wanted to buy such bonds, now might be the time to open your account. The Fixed Rate might well drop then, as well as the Inflation Rate. Rate Information. I Bonds. Treasury Direct.

Who's More Informed: Soros or Washington?

Frugal Jay alerted me to an interesting interview with billionaire George Soros. It immediately raises the question of whom you should trust for dependable information about economic matters as you plan your investments: Soros or Washington? Soros Talks (Loads from Marketplace.org) Soros on Marketplace.org Forthcoming Soros Book Connect the dots yourself: Leadership in Washington Since February April 3, 2008: President Steps Aside March 18, 2008: President Upbeat About Economy, President as Cheerleader February 28, 2008: The Gasoline Issue Print Version, Feature, Body Language, YouTube

Prediction Abilities and Personal Budgeting

How accurate are people in predicting the things that will make them happy? How accurate are people in predicting their own future behavior? These kinds of questions underlay some of the most interesting research in contemporary cognitive psychology. In general, the findings indicate that people are much less accurate in predicting their futures than they think they are. Regarding personal finance, your ability to predict your own future behavior is an extremely important component of eventual financial success. Part of that ability might be learned but much of it is most probably a matter of innate temperament. Later posts will examine this more closely. In general, when we talk about the big picture, short range predictions - say, about the economy - tend to be more accurate than long range predictions. The billions of dollars spent in Iraq this month will continue to be spent next month. The hardships people suffer from the mortgage meltdowns this month will continue next month. The loss of middle-class jobs we suffered this month will continue next month. For your personal finances, the opposite might be true. Long range predictions might be more accurate than monthly predictions. This is something that must be considered as you do your taxes, review your finances and make plans for your future. Predicting long-range financial conditions for yourself might be more accurate than short range predictions as you do your budget! The key to effective budgeting is looking at the big picture over the long haul!

Do Stocks Outperform Bonds?

Investor folk wisdom preaches that stocks outperform bonds. Therefore, choose stocks when you need growth. This chart shows results for an investor who put $10,000 into each of three Vanguard funds roughly ten years ago: Total Stock Market Index and the Total Bond Market Index, which reflect the US market, and Total International Stock Index. Investments would have grown as follows: Total International Stock Index $20,527 Total Bond Market Index $17,546 Total Stock Market Index $15,477 Few investment advisers would have counseled the investor to put all the money into the international fund, so they would, in effect, have steered the investor away from the most profitable investment. Most would have advised the investor to put everything into the domestic stock fund, which was the least profitable course of action. Others might have advised the investor to use asset allocation to dampen some of the volatility of the stock funds by splitting the investment between stock and bond funds. The point? Apply critical thinking to folk financial advice! Bonds can outperform stocks! Equally important, bonds can give some protection against market volatility. Look at the chart for 2003. An investor who needed money for an emergency would have been in bad shape if all the investment had been put into stocks. Conclusion: Stocks might outperform bonds, or they might not! It all depends on a lot of other factors which you need to consider as you plan your strategy.

Theatre of Investing

Click image to enlarge.

Charles Givens and the Theatre of Investing

This blog began around 1990 (Had Gore even invented the internet then?) when I saw personal finance guru Charles Givens being interviewed on a morning television show. Givens mesmerized the program hosts as he described strategies for managing money and accumulating wealth. When his alloted time was over, the hosts were visibly reluctant to let Givens go. If memory serves me right, Bryant Gumbel was one host. In my mind's eye, I still see him delightedly conversing with Givens and making a mental checklist of things he needed to do in his own financial life after the show was over. Even after Givens left, the hosts continued to talk enthusiastically about what they had learned. Given their intelligence and celebrity status, it was startling to see how little these wealthy persons knew about handling their money. If it was good enough for the talk show hosts, it was good enough for me. Givens was on the air to promote his books and his lecture tours and the company he had founded to dish out financial advice and services. I immediately went to the library and checked out Wealth Without Risk, a Givens bestseller. The book taught me a lot about managing personal finances. In fact, I was so happy about what I was learning that I attended a free one-day seminar offered by the Givens company. There I learned even more about cleaning up my disorganized personal finances and investing to take care of my kids, so I bought a box of educational videotapes (Are you surprised they were hawking merchandise?) that I would use myself and share with loved ones. The materials were actually very informative and I still, in moments of pique, ruminate about which of my beloveds still has those tapes floating unlocatably in a basement or attic when I might want to watch them again some day. As often happens in enterprises dealing with finance, the Givens companies ended ingloriously, caught up in allegations of scamming customer money and lawsuits and other ugly things. I'd like to know more about Givens himself. Was he ever accused of any criminal behavior? Did he manage to hold onto his own wealth? What's his story? If he had lived longer, maybe he would've been able to clear his reputation. Or maybe he would've been able to establish himself as a first rate scammer if this is what he was. Who knows? At any rate, I learned enough about investment techniques from Givens to make a little money in the stock market. Some of it was lost, so I had to learn how to try and make it back. But learning about investment techniques is not the major lesson which needs to be mastered in regard to successful personal finance. The important lesson is that protecting your family's wealth and security requires vigilance, critical thinking and a good eye for the best and the worst of people. If you follow the advice of gurus who promise you you can make yourself wealthy just by performing a few tricks or following the folk wisdom of the financial industry, you will eventually scam yourself. Now you see the subject of our blog: What are the ways in which middle class people scam themselves into undermining their own financial security? If our readers desire it, we might even turn the blog into a wiki. Scamming and showmanship are natural partners. There was a lot of showmanship in the television interview where I first encountered Givens and a lot of showmanship in the seminar I attended later and a lot of showmanship in the controversies and collapses of his various enterprises. Such showmanship inclines me to invoke a theater metaphor for understanding how to deal with personal financial security and the villains that threaten to undermine it. We'll do more with this metaphor later. Finally, on several occasions I heard Givens advise people not to take the accumulation of wealth too seriously. It's important, he repeatedly preached, but it's not all that important. You transform yourself into a fool when you let the accumulation of wealth impair your important relationships or undermine your spiritual integrity. That's really good advice. So, thank you, Charles, for the enlightenment you provided. And the entertainment!