Friday, August 22, 2014

Chicago Politics and Illinois Taxpayers .... Another Example of Why Politics Sucks ...Connecting the Dots

Chicago politics has long been a study in corruption.

It also is a story of a city whose financial issues are dragging down both the citizens of Chicago and those of the rest of Illinois as well.

And to top it off, its schools are terrible while its high rate of crime, including murders, is second to none.

Meanwhile, there's no money left to pay the bills, but that doesn't stop the leadership of the teachers' and other public sector unions from claiming that more and more money is due and owing to them from the city's citizens and the rest of the state's taxpayers.

So apparently now it's time for another heist of the taxpayers, and the fix is in.

Rahm's Rival captures the essence of the latest move by teachers' union leader Karen Lewis to capture more taxpayer money for her largely unaccountable constituency:

"Joe Biden plans to parachute into Chicago Monday to raise cash for congressional Democrats and Illinois Gov. Pat Quinn. Left out in the cold is Second City Mayor Rahm Emanuel—President Obama's former chief of staff—who may soon have to fend off a challenge on the left to his re-election next February.

For months Chicago Teachers Union chief Karen Lewis threatened to challenge the unpopular mayor who's beleaguered by rising violence, school closures and fiscal woes. Last month she formed an unofficial exploratory committee after a We Ask America poll showed her leading the mayor by nine points in a hypothetical match-up. On Wednesday she filed papers with the state Board of Elections to raise money and collect signatures.

Ms. Lewis denied on Tuesday at a public forum in Chicago that she's made up her mind. . . .

Karen Lewis, president of the Chicago Teachers Union addresses the crowd during a rally in 2012.                            

Ms. Lewis suggested that she'd most likely run "if we get enough petitions" by the Nov. 24 deadline. Just 12,500 are required, which isn't a tall order given that the Chicago Teachers Union has more than 25,000 members. Ms. Lewis also mentioned needing money, but labor unions could bankroll her bid without much difficulty. American Federation of Teachers President Randi Weingarten has already pledged "to go all in."

The major overhanging question is whether Ms. Lewis wants to run or is merely trying to gain leverage in negotiations over the new teachers contract. The current labor agreement, which Ms. Lewis browbeat the mayor into by staging a seven-day strike in 2012, expires next year. Who can doubt that the union chief intended for the negotiations to overshadow Mr. Emanuel's re-election bid?

Note that Ms. Lewis has pointedly refused to set a deadline for making a decision—she officially has until late November—saying that "I want to run things on my timeline." During the next three months, she will no doubt engage in more brinkmanship to squeeze labor concessions out of the Emanuel administration. So maybe the real question is how much the mayor is willing to sell out taxpayers and kids to keep Ms. Lewis out of the race."

Summing Up

Politics sucks.

And in Chicago it really sucks.

Chicago politics has for far too long been a game of 'ignore the interests of the kids and fleece the taxpayers' played by experts, aka Chicago Democrats.

But now that it's become a too costly and unaffordable one, Mayor Rahm Emanuel apparently is trying to do some constructive things. But he won't be allowed to remain as Chicago's mayor if he stays on that constructive course.

So once again the kids and other citizens of Chicago and the taxpayers of Illinois are being set up again for another fleecing, regardless of whether Mayor Emanuel or Mayor Lewis is running the sick Chicago show the next few years.

As a result, we should expect that the city's downhill slide will continue in both the Windy City and the state of Illinois.

Sadly, that's pretty  much "in the bag."

At least that's my take.

Thanks. Bob.

Monday, August 18, 2014

While Government's Intentions May or May Not be Good, the Consequences and Results are Almost Always Inferior to Those of the Free Market .... Let the Free Market Work

Lots of well intentioned people extol the virtues of big government and complain about the vices of big business. One is charged with doing good things on behalf of We the People and the other is required to satisfy customers with offerings valued by those customers and at the same time be responsible to its owners for making a satisfactory profit on their investment.

And that's where the confusion comes into play. For example, if we look at schools, including colleges, government rules the roost. Controlling costs and providing value at low prices aren't part of the equation, and prices are therefore sky high. Accountability to provide satisfactory results to customers (students) and owners (taxpayers, including parents and adult students) is low and 'satisfaction guaranteed' isn't even an afterthought.

In business making a satisfactory profit for its owners is indeed the cost of staying in business. If you don't make a satisfactory profit, employees won't have jobs and owners will take their money elsewhere to invest. And if you don't satisfy customers while doing so, you'll go broke and out of business. Either way, you lose.

In government, however, there is no need or even serious attempt to control costs and have revenues exceed those costs, thus achieving a profitable and sustainable status as an ongoing entity. The government instead just raises fees and taxes due to its monopolistic status and ability to tax We the People.

But government is well intentioned, you say. Perhaps it is, at least in many cases, but so what? is my response. The Government Is not a Unicorn, recently written by a professor at Duke, has this to say about that:

"When I am discussing the state with my colleagues at Duke, it's not long before I realize that, for them, almost without exception, the State is a unicorn. I come from the Public Choice tradition, which tends to emphasize consequentialist arguments more than natural rights, and so the distinction is particularly important for me. My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA.

But their solution is, without exception, to expand the power of "the State." That seems literally insane to me—a non sequitur of such monstrous proportions that I had trouble taking it seriously.

Then I realized that they want a kind of unicorn, a State that has the properties, motivations, knowledge, and abilities that they can imagine for it. When I finally realized that we were talking past each other, I felt kind of dumb. Because essentially this very realization—that people who favor expansion of government imagine a State different from the one possible in the physical world—has been a core part of the argument made by classical liberals for at least three hundred years."

Still not convinced about the real vices, and not the perceived virtues, of big government compared to business and free markets? Then please take the time to read Senate Democrats vs. the Middle Class which reads in part as follows:

"On Nov. 3, 2008, seven new Democratic senators were elected, giving Democrats 58 votes. . . . In 78 days, American voters will render judgment on the record of the Senate Democratic Class of 2008, and on all 35 Democratic candidates seeking to perpetuate their Senate majority.

The Senate's Democratic majority was united after the 2008 election in its commitment to President Obama's progressive vision to remake America. And with a financial crisis afoot, it was determined to not waste the opportunity. . . .

With his party's Senate supermajority, President Obama achieved a series of historic political victories. But the question most voters will have to answer on Nov. 4 is whether this program has been good for working Americans. . . .

While all Democrats claimed to be champions of the middle class and defenders of minorities and women, census data show how their program did not live up to their campaign promises.

Since the Senate Democratic Class of 2008 took control, the average real income of the poorest one-fifth of American families has declined every year, falling to $15,534 in 2012 from $16,962 in 2008 (the 2013 data will be released Sept. 16). The average real income of the lowest quintile of Americans is now below the level it was in 1968, the year when the War on Poverty began its spending surge.

The next-highest income quintile, often referred to as the working class, has also experienced a continuous decline in real income since January 2009. The average income of these Americans has fallen 6.5% and is now $1,182 lower than it was when President Reagan left office.

The third quintile—America's middle class—has seen its average income decline to $62,464 from $65,672. More than half of this decline has occurred since the recovery officially began in the second quarter of 2009. . . .

The Democratic Party's great political victory in 2008 led to the realization of a progressive agenda in the making for a century. But that agenda resulted in economic failure for working Americans. It failed as it has always failed: Progressive policies buy votes but destroy prosperity. The Senate Democratic Class of 2008 and the entire Obama program are now endangered because their program has hurt the very people it was supposed to benefit."

Summing Up

Facts are stubborn things.

Elections have consequences.

The road to hell is paved with good intentions.

The free market, and not government control, works best for all of We the People.

Let's give it another chance.

Thanks. Bob.

Sunday, August 17, 2014

Free Markets, Competition, Low Prices and Customer Satisfaction ... Saving Money on Cell Phones and Books

School days are right around the corner.

So when I came across the following savings opportunity for cell phones and books, I decided to share it.

Three Deals You Should Know About offers this common sense advice to the saver:

"Let's make a deal. You want to save money, but you're fed up with eating cheap cereal out of a bag. And you don't even think about drinking a "latte" anymore. Not even at home.

What else can you do? . . .

1. Change cellular plans.

There are new plans available and, unknown to most consumers, you can get pretty much the same service you have today for a lot less.

The reason? The big networks are desperate for revenue, so they're slashing prices. But they are doing it in a semi-secret way so only bargain-hunters know about it: by selling airtime on their networks to third-party companies which then sell it on to consumers cheaply under "generic" brand names.

Not long ago, one of those operators set a new bar in cheap plans: Free. FreedomPop, a new cellular company, is offering a basic monthly cellular package that involves no contract and which costs zippo dollars a month. Nada.

If you use less than 200 minutes of voice calls each month, send and receive fewer than 500 texts, and use less than 500 megabytes of data, it will cost you nothing.

You can upgrade to unlimited calls and texts for just $11 a month. There are various cheap data options, too, such as $20 for two gigabytes —enough for lots of email and basic web surfing. And it's far below typical rates for service when purchased direct from the major networks.

In an innovative move, FreedomPop also lets you "earn" extra data by downloading ads from the company's advertisers. You can also share surplus data with friends and family also on the FreedomPop plan.

FreedomPop doesn't have its own network. It resells airtime from SprintI've been using it for a month, mostly in Boston but also in rural New England, and I'm happy with the result. I had no problem with calls or texts, and when accessing mobile data I usually connect at high "3G" or "4G" speeds, depending on location.

The main caveat is that so far the service works only with a few smartphones (including Sprint-compatible iPhones). I bought the cheapest available, a Samsung Victory LTE, online from FreedomPop for $120. I consider that a bargain: I'm not locked into a monthly contract, and if I just use the phone occasionally the service is free.

Other third-party operators offering supercheap cellular service: Straight Talk and Simple Mobile. But FreedomPop may be the first to offer service for free.

2. Dump your Kindle.

And go back to reading books the old-fashioned way: on paper. . . .

Hard to believe, but paper books aren't just much nicer to read; they can also be cheaper. If you buy them secondhand, they can be much cheaper.

For instance, Stephenie Meyer's teen-vampire best-seller "Twilight" will cost you $8.99 on a Nook or a Kindle. A paperback in good condition: $3.29, with free shipping in the U.S., from
Mitch Albom's "The Five People You Meet In Heaven": $9.99 on a Nook or Kindle. From Thiftbooks: $3.19.

And if that's still too much, download for free all the classics you've always meant to read, from Project Gutenberg ( If you want something more modern, check it out of your library."

Summing Up

Makes sense to me.

If it makes sense to you, pass it on.

When free markets are at work, customers rule.

That's the way it should be, and that's my take.

Thanks. Bob.

Saturday, August 16, 2014

Investment Advice and Palm Reading

Predictions are dangerous --- especially those about the future.

So why do so many people pay their hard earned money, and money which they could otherwise invest for the long term, to stock brokers and other so-called market experts?

Why do they pay to listen to these people who make their money by telling us mere mortals where the market is headed in the short term? Beats me.

Over the long haul, of course, the market will do well. But over the short term, who knows? Nobody.

So if you're a short term gambler and want to play the market for fun or profit, have at it. But if you're an investor, just know that nobody can predict the short term and that the long term is all that matters. Then act accordingly.

Not convinced yet? In that case, maybe We asked a palm reader and a market adviser how to handle our money is worth considering:

"Last week, the guy who created the Dilbert comic strip created a stir when he likened investment advisers to palm readers. We couldn’t help wondering: If the two professions are so similar, would they give you similar advice?

It goes without saying that Scott Adams’s comparison wasn’t meant as a compliment to financial pros. “The reason it is legal to open a palm reading shop is that the public understands it to be entertainment and not prediction,” Adams wrote on his blog. “You can buy investment advice if you want it, but not until you sign a document acknowledging that science says no one has magical stock-picking skills .”

With this in mind, I chatted with a midtown Manhattan palm reader about how I should handle my money (she wasn’t privy to the fact that I’m a reporter, so she’ll remain anonymous). Then I called Christopher Van Slyke, an investment adviser and founder of a wealth management firm in Austin, Texas (he did know that I was a reporter, and that his advice would be compared with that of the palm reader). Both were aware that I’m a millennial with a steady job.

The bottom line: The financial advice they gave me had an alarming number of similarities—though only one of them recommended using “The Force.”

Here are the details:

1. Where’s the market going — can we expect a correction or crash?

Palm reader: “No, I don’t feel that at all,” she said, because “that’s what my senses are telling me.”

Adviser: “I don’t know any of my clients who need their money like, next week,” said Van Slyke, founder of the firm WorthPointe. “So it’s irrelevant what the market is going to do in the short term. Yes, there will be a correction. I have no way of knowing when it is. Does it matter? No.”

2. Should I be an active or passive investor?

Palm reader: “You’re not good at taking advice,” she said. She added that her reading indicates I am the kind of person who should own my own business — meaning I am more suited to picking my own stocks.

Adviser: “There’s no evidence that anybody can outperform the market in the long run by trying to forecast the short-term prices. I do not see the case for active management,” Van Slyke said. Buying the whole market through indexing is “like The Force in Star Wars. Accept The Force.”

3. Where should I put my money?

Palm reader: I should buy stocks, and pick medium-sized companies rather than big companies, she said. “Right now, I think you should find something that’s going to grow your money. I don’t feel like Apple or Google will do anything big right now,” she said, adding that she’s not a stock picker and “this is just my psychic feeling about it and my psychic feeling toward you.”. . . 

Adviser: “If I’m a millennial, I’m not interested in anything but stocks or equities,” Van Slyke said.... “I want to not trade much and hold it and keep adding to it.”                                        

4. How much should I save for retirement?                                        

Palm reader: I should put 15% to 20% of my money aside for investing and “just to have.” As for specifically retirement saving, I shouldn’t sweat it, even as I get older. . . .                                        

Adviser: “If you can save 15% of what you make your entire life and put that into index funds and mutual funds, you’ll be just fine,” he said. “The key is to start doing that when you’re 18, 19, 21, 22, 23. Unless you want to make it hard on yourself and start when you’re older. What you’re trading for more beer and more partying is a secure future.”"

Summing Up

So do yourself a favor and develop the habit of setting aside part of your earnings early in life and investing that money in the shares of an S&P 500 Index fund or individually in the shares of a diversified basket of high quality companies.

That's the simple and best way for the vast majority of us to achieve financial security over the long haul.

In other words, don't pay financial experts for advice that isn't helpful. Keep the money and let it work for you instead of letting it work for the "expert."

That's because paying a "palm reader" to guess about the short term direction of stock prices isn't worth what it costs.

So save your money, invest it and watch the wonders of the rule of 72 come true.

That's the way to take care of the long term needs of yourself and your family. After all, it's your money.

That's my take.

Thanks. Bob.             

Friday, August 15, 2014

Pogo, We the People and the Financial Woes of Our Postal Service ... They Say a Lot About Our Nation's Broader Problems of Governance and the Wishes of We the People

Pogo said, "We have met the enemy and he is us."

And so it is with big spending government and the strong desires of our elected officials not to do anything to upset the big government bureaucracy or the wishes of We the People as voters.

Look no further than the post office for evidence of the ongoing conspiracy of government employees, elected officials and We the People as "beneficiaries" of the $2 billion per year subsidized loss making services provided by our postal service.

Senators Seek Moratorium on U.S. Postal Service Closures is subtitled 'One-Year Halt Needed to Enact Comprehensive Postal Reform, Senators Say:'

"Fifty senators on Thursday joined forces to try to halt for one year a U.S. Postal Service plan to close 82 mail sorting centers, cut 15,000 jobs and slow delivery speed for some letters.

Since the Postal Service revised its service standards more than two years ago, "it has been more difficult for the American public and small businesses to receive mail in a timely manner," the senators wrote in a letter. "Slowing down mail delivery even further will hurt senior citizens on fixed incomes, small businesses and the entire economy."

The senators sent the letter to leaders of the Senate Committee on Appropriations and asked them to include a one-year ban on these cuts as part of any spending bill for the fiscal year beginning Oct. 1. While the majority of those asking for the changes were Democrats, it was signed by seven Republicans and one independent. . . .

The Postal Service argues the changes are necessary as it adjusts its business model to compete with the Internet. The agency, which employs more than 600,000, reached its credit limit of $15 billion with the Treasury Department in 2012 and generally has only enough cash on hand to fund a couple of weeks of operations. First-class mail volume has fallen about 30% over the past decade to about 66.7 billion pieces in 2013, although it still accounts for nearly half of revenues each quarter....

Earlier this week, the Postal Service posted a third-quarter loss of $1.96 billion, although its revenues increased due in part to higher postage rates and its booming package business. . . .

In December 2011, after a similar initiative, senators won a voluntary agreement from the Postal Service to place a five-month moratorium on closing facilities while they worked on enacting comprehensive postal reform legislation. None was passed.

The facility closings would affect primarily the handling of first-class mail and periodicals. Currently, most first-class mail is delivered within a one- to three-day window. The proposed changes would reduce the amount of that mail delivered in the one-day time frame and shift more into the two-day time frame, the Postal Service said, saving the agency $750 million each year. . . .

Closing additional facilities would allow it "to invest in new package sorting equipment and other upgrades," the Postal Service said in June. Over the past five years, its package business grew about 20% to 3.7 billion packages last year.

Its network, however, was built for letters, not packages. The Postal Service's executives say it needs to spend $10 billion over the next four years to upgrade delivery trucks and other infrastructure.

The biggest financial hurdle for financial success for the agency has been an approximately $5.5 billion annual pre-funding requirement for its retiree health benefits, established by Congress. It is likely to default on the payment for the fourth time in a row this year.

Excluding that requirement and some workers' compensation items, it would have made $1 billion so far this year.

The president of the National Association of Letter Carriers didn't immediately respond to a request for comment, but the organization has previously called for removing the pre-funding requirement and leaving the network in place.

In the letter, the senators say that the one-year moratorium will give it "the time it needs to enact comprehensive postal reforms that are necessary for the Postal Service to function effectively in the future.""

Summing Up

As I recall, the postal service was established in or about 1789.

And the politicians say they need more time to sort things out and allow the "Postal Service to function effectively in the future."

The only viable solutions are to either discontinue the post office as we know it or raise taxes sufficiently to pay for the losses, or to enact a combination of both tax increases and a drastic curtailment of services, including home deliveries.

But We the People don't like the idea of a service reduction, nor do we like tax increases.

So the elected politicians vote to put off any meaningful solution and instead vote to put it on the tab of future taxpayers, aka our kids and grandkids.

And we 'adults' allow them to do so.

The sad fact is that we probably would vote them out of office if they started doing their job of managing our nation's financial affairs as responsible fiduciaries.

Unfortunately and sadly, that's my take.

Thanks. Bob.

Sunday, August 10, 2014

College Sports and "Student Athletes" ... The Charade Continues ... The Few Haves versus the Vast Majority of the Have Nots ... TV Contracts for Big Time Football and Men's Basketball Pay All the Bills

We hear too much about the plight or privilege, as the case may be, of student athletes in big time programs who attend college for free and play sports, especially football and men's basketball.

But what we don't hear about nearly enough concerning these same student athletes is what is happening to most of them, or not happening, as the case may be, in the college classroom.

In other words, what kind of education are they getting while attending those colleges and participating in those big time programs? You see, while all are athletes, many if not most are not student athletes.

So why don't we stop this phony public relations image charade and let the market be the judge. Pay the market rate, in other words, by letting a free market develop and allowing the big time players to share the big time wealth.

And in the case of the vast majority of college athletic programs that represent nothing more than heavy financial drains for both taxpayers and non-participating students, why don't we stop making them pick up the tab for the money losing programs and "non revenue" sports, including women's programs?

Yet the sick joke about the intersection of sports and academics continues as the NCAA announced last week that the big name conferences will be allowed to pay their student athletes an additional pittance of $2,000 to $4,000 annually.

That doesn't seem fair to me, or even honest, assuming the idea behind today's NCAA decision is to share the wealth and recognize that student athletes at major colleges competing in the major sports (football and men's basketball) are entitled to be properly compensated for the work they do.

And while we're telling the truth, let's also acknowledge that the vast majority of college sports programs lose a great deal of money on their athletic programs. Those football and men's basketball programs which operate below the top five conferences almost all lose money. And at all colleges, virtually all sports programs (other than football and men's basketball at the "Big Five" conferences) charge the vast majority of non-athletes and the taxpayers at large big money to pay for those athletic programs' losses in the form of compulsory student fees.

And on top of all that, think of all the players, even the ones who play on TV, who go to college to chase the big money dream and end up with no degree, no pro contract and no big money. It's not a pretty picture, nor is it a healthy one either.

NCAA Votes to Give Big Colleges More Autonomy is subtitled 'Move Lays Groundwork for Those Schools to Pay Players a Few Thousand Dollars More a Year:'

The NCAA voted Thursday to give the nation's five richest athletic conferences more power to govern themselves.

"Universities with big-budget athletics programs will soon have a rulebook of their own after the NCAA voted Thursday to give the nation's five richest athletic conferences more power to govern themselves.

The move lays groundwork for those schools to pay college players a few thousand dollars more a year to cover the cost of attending school and otherwise loosen restrictions on athletes. Schools could begin voting on rule changes in January.

The decision by the NCAA Division I board of directors affects the 65 schools in the Atlantic Coast, Big Ten, Big 12, Pac-12 and Southeastern conferences.

It makes official what has long been true: schools with the top teams in football and men's basketball operate on a different echelon than colleges with more modest sports programs.

Only, under the new system, the University of Alabama, with an athletic department that generated $125 million in 2011-12, would get to bestow more perks, protections and freedoms on its players than a school like North Carolina Asheville or Mississippi Valley State, which generate athletic revenues well below the $7 million-a-year salary of Alabama football coach Nick Saban.

NCAA President Mark Emmert said in a statement that the new system "represents a compromise on all sides that will better serve our members and, most importantly, our student-athletes."

The idea of another tier in college sports has long been unpopular among the smaller schools that comprise the majority of the NCAA's 350 Division I schools. But the so-called power conferences gave those schools a reason to get on board. Commissioners of the big conferences in recent months suggested that, without more rulemaking freedom, they would leave the division altogether, taking with them the billions in revenue they generate.

Advocates say it's only fair for schools that generate hundreds of millions from college sports to pass on some of those riches to players. . . .

Opponents say the move only deepens the have-and-have-not nature of college sports and is another step toward commercialization of college athletics. . . .

The move comes amid growing public pressure on NCAA schools to share some of their rising revenues with athletes. The five power conferences each are taking in hundreds of millions of dollars annually, largely through skyrocketing broadcast-rights deals to telecast football games. Yet athletes are prohibited by NCAA rules from profiting from their athletic skill or fame beyond their scholarships.

In several separate cases, current and former college athletes are suing the NCAA and prominent athletic conferences, seeking a portion of revenues or the end of amateurism rules that prohibit free-market compensation for athletes.

Putting in place a stipend will be among the first orders of business if the structure holds. College-sports leaders have discussed giving athletes an annual stipend of $2,000-$4,000 to cover what studies have shown is a gap between the value of a full athletic scholarship and the actual cost of attending college."

Summing Up

Here's what I say.

The NCAA still has no intention of sharing the real wealth with these so-called student athletes in the big five conferences.

And the vast majority of these so-called student athletes, won't ever make a living playing ball after their college days are over.

And many, if not most, won't even graduate or be able to get good jobs after being in college for four or more years playing ball and chasing the dream.

So why not drop the NCAA's longstanding monopolistic practices and pay these players a market based salary while they play for good old alma mater and make their coaches and institutions lots of money and provide their fans and alums with lots of good entertainment along the way?

And why not quit charging the real students that portion of their student fees which goes to support the money losing college sports programs so prevalent throughout our American institutions of higher learning, including the "Big Five" conferences.

In other words, let the free market decide and stop playing silly games.

That's my take.

Thanks. Bob.

Thursday, August 7, 2014

Retirement Readiness? ... Not Hardly

We oldsters know that old age happens faster than we ever dreamed possible.

That said, too many of us acted as if we never were going to get old during our younger years.

And that's especially true with respect to setting enough money aside for retirement and thereby being able to cross one worry off our lifetime list.

So how bad is it, you ask?

Many Americans are not prepared for retirement: Fed survey has the not-so-pretty details:

"Many U.S. households are not prepared or even planning for retirement, according to a new survey released by the Federal Reserve Thursday.

“When it comes to planning and saving for retirement, the survey results tell a somewhat cautionary tale,” the survey concluded.

Despite the shift from pension plans to 401k plans, which has placed responsibility on the individual to plan for his or her their retirement, only about a quarter of those surveyed appear to be actively doing so.

Here are some stark facts:
  • Just under a third of non-retired U.S. households reported having no retirement savings or pension, including just under 20% of households aged 55 to 64.
  • A quarter of the respondents said they had done no retirement planning at all.
  • Of those who have given some thought to retirement planning and plan to retire at some point, 25% didn’t know how they will pay their expenses in retirement.
Even the concept of retirement seems to be losing its luster. Among those ages 55 to 64 who had not yet retired, more respondents said they expect to keep working “as long as possible” than households who said they plan to follow the traditional retirement model of working full time until a set date and then stopping working altogether."

Summing Up

When I began working for a living long ago, pension plans were the norm.

As individual employees we didn't have to be concerned with saving and investing for our retirement income security, assuming we kept working at good jobs during our working careers. At least this was how it began.

Over time, however, things changed in the private sector as individuals were given responsibility to make our own saving and investment decisions.

As a result, 401(k) defined contribution plans with a lack of guaranteed retirement benefits replaced the previously guaranteed defined benefit pension plans.

Meanwhile, most public sector employees still receive guaranteed pension plan benefits as the normal practice.

Thus, today the minority of American workers who are employed in the public sector continue to receive guaranteed retirement benefits which generally are better than the lack of guaranteed benefits provided by the private sector.

That curious and essentially unfair situation where the minority trumps the majority won't last much longer. At least that's the way I see things developing.

As a result, We the People, all of us, need to get busy getting educated about our personal financial affairs and responsibilities, because big brother government won't continue to foot the bill indefinitely for public sector employees.

Finally, and as the Fed Survey makes clear, far too many private sector employees continue to ignore reality and neglect their future retirement income needs.

No, the young aren't going to pay our bills to the exclusion of their own well being and that of their families, and taxpayers aren't going to provide better and guaranteed retirement income benefits to public sector employees for much longer either.

Big changes lie ahead, so it's best to follow the advice of Boy Scouts everywhere; "Be Prepared!"

That's my take.

Thanks. Bob.

Student Loans ... Satisfying Today's Desires Too Often Brings on a Lifetime of Negative Effects

Student loans for attending college have reached historic levels and are becoming larger each year.

Some attendees graduate, and then go on to good jobs, and some don't.
But too many leave college with debt burdens that will haunt them for years.

So while tuition costs continue to escalate, the harm imposed by the student loan debt burdens last well into, and perhaps through, adulthood.

A new study has the gruesome details in College Loans Are a Burden Long After Graduation, Poll Finds:

"People who take out significant college loans score worse on quality-of-life measures, a trend that persists into middle age, according to a recent poll of college graduates.

Even 24 years after graduation, students who borrowed more than $25,000 are less likely to enjoy their work and are less financially and physically fit than their counterparts who graduated without debt. For more recent college grads, the discrepancy is even more pronounced.

"These results offer a new dimension of how college debt affects the rest of your life and it gives us more cause for concern," said Brandon Busteed, executive director of Gallup Education, which conducted the poll in conjunction with Purdue University. "It's bad for all aspects of your life."...

The five categories in the questionnaire assess whether people feel that they have purpose to their lives, supportive relationships, financial security, a sense of community and physical well-being. Those who finished college between 2000 and 2014 with more than $50,000 in debt were significantly worse off in all five categories than those who graduated with no debt....

The amount of debt students are taking out to get through college has been climbing for years. About 70% of college graduates have debt. The average debt today is more than $33,000, up from $18,600 in 2004....

Mr. Busteed said high debt could undermine people's sense of purpose by prompting them to take jobs that pay more rather than ones they are really interested in. It might also deny them the flexibility to leave and try something new.

High debt also postpones buying a home and getting married, which could delay connecting to a community. And debt creates stress that can hurt physical health.

The longer-term implications may be rooted in the fact that those who graduate with considerable debt may have put off saving for retirement, which could generate additional anxiety."

Summing Up

Borrowing excessively for college, or anything else, is harmful to our economic health and well being.

Getting an education is helpful to our economic health and well being.

And obtaining that college degree need not be followed by a lifetime of regret due to indebtedness incurred while pursuing that education.

All too often we ignore the best interests of our "future self" and adopt the eat, drink and be merry habit of satisfying the desires of our "present self."

And then we pay -- and pay -- and pay some more.

That's sad.

And that's my take.

Thanks. Bob.

Monday, August 4, 2014

First Things First ... Owning Stocks for the Long Haul ... Avoid Bonds and Target-Date Funds

Chad posted earlier about the comparative attractiveness and wisdom of owning stock index funds versus investing in a portfolio of diversified individual stocks. See "Down the Rabbit Hole."

While both methodologies are sound approaches, the most important thing for individuals is to save and invest in stocks for the long haul, whether in a low cost index fund or a diversified portfolio of securities.

And perhaps the next most important thing is not to overly invest, or perhaps not even invest at all, in bonds, the so-called 'safe' way to invest. That's because today bonds are not a safe play at all, as interest rates are at historic lows and have nowhere to go but up over the next decade or two. And when interest rates rise, bonds decline in value.

And that warning about staying away from low interest paying bonds applies as well to owning  target-date funds as well. In fact, target-date funds overly invest in bonds. At least that's my view.

Why auto-pilot investing isn't all it's cracked up to be is subtitled 'New research on target date funds has investing world in a tizzy:'

"One of the most appealing concepts in investing can be summed up as “auto-pilot,” the idea that you let someone else do the navigating and guide you to your destination.

But some prominent new research suggests that investors who have put their most important long-term assets on auto-pilot may wind up off-course.

The operative word here is “may,” but the situation is worth examining because it suggests that investors using target-date retirement funds should be careful about making selections, rather than simply accepting a one-size-fits-all course of action.

To see why, let’s look at the research that has the target-date fund world squawking.

Rob Arnott, chairman of Research Affiliates, recently published research that examined all 40-year time spans dating back to 1871, finding that retirement investors would be better off turning conventional wisdom on its ear and investing a higher percentage of assets into stocks as they age.

The standard target-date plan becomes more conservative as an investor ages, typically getting down to keeping just 20% of assets in stocks over time. Arnott suggested flipping that strategy, and investing more in stocks as an investor ages; the results, he suggested , would be more than 20% more in the retirement chest as a result. . . .                                              

The second piece of data that could change the way people view target-date funds comes from Morningstar Inc., which recently released its 2014 research paper on target-date issues. The findings directly contradict studies suggesting that any sort of market-timing approach — any tactic that deviates from the standard glide path — results in lesser results....                                      

What no one is going to say here — not even Arnott — is “This is the one right way to do things.”                                        

That’s problematic for consumers who have come to believe that a target-date fund is a solution to all of their decision-making problems. . . . 

What’s more, for all of the work showing which paths would work best, the plain truth is that no fund — target-date, balance, target-risk, tactical allocation, whatever — is sufficient for someone who hasn’t saved enough. The only way to make sure any fund can build an ample nest egg is to set aside enough dollars so that a range of returns from whatever path the fund follows results in satisfactory savings."                                        

Summing Up

Owning stocks for the long haul, whether in an equity index fund or as part of a diversified portfolio of individual securities, is the best route to achieving financial security.

But to do that, beginning to set aside sufficient amounts of money early in our careers and thereafter positioning ourselves to benefit from the 'magic' of compound interest (rule of 72) is essential.

Next comes adopting a habit of saving regularly and investing those savings in stocks for the long haul, whether in low cost index funds or a basket of individual securities.

Finally comes patience, stick-to-it-iveness, and knowing that dollar cost averaging will yield a high value result down the road. And that's when it matters most --- down the road --- not today.

Patience is a virtue in long term investing because in the short term, stock prices will be volatile and fluctuate up and down, sometimes wildly.

But over the long haul, stock prices will increase and almost certainly outpace inflation over time. Other investments probably won't.

That's my take.

Thanks. Bob.               

Sunday, August 3, 2014

Down the Rabbit Hole

I recently found two articles on, one advocating investing in index funds and the other arguing that the bashing of active fund managers is overblown. Both authors had logical, researched arguments. And I would be comfortable taking advice from either.

This reminds me of a recent interview of Dan Carlin (of the Hardcore History podcast) by Tim Ferris, the author of The 4-Hour Work Week. Carlin described his work routine before and after the internet came to be what it is. He used to identify a current event topic for his radio/podcast show and read the opinions in five American newspapers because those are the publications he could easily access. Now he can instantly get reactions from publications all over the world. And he can dig as deeply as he wants. Keenan Mann and I call this "going down the rabbit hole."

According to Carlin, this especially comes in handy when the topic is based somewhere besides the United States. For example, reading the opposing opinions of various Chinese publications about a Chinese event often gives a more "nuanced" understanding than reading the various reactions from US based writers.

A friend once told me he didn't like keeping up with current events because everything he reads is "just opinion and no facts." But I like that different perspectives are shared and that I am able to decide for myself what to think. And I especially like that I have the ability to go down the rabbit hole as needed. I believe the truth is the "facts," or "right ways" to do things, are often subjective and depend on one's own circumstances and perspective. After all, I happen to actively manage my own retirement funds. But when asked I have sometimes suggested others use index funds.

Friday, August 1, 2014

Government Scorekeeping is Bogus ... A Bunch of Financial Lies, In Plain English ... We Need to Tell Each Other the Plain and Simple Truth

When it comes to telling the truth about our nation's finances, government scorekeeping is bogus and is pretty much just one big lie.

Yet we allow the politicians to represent it as the truth, whole truth and nothing but the truth each year.

But while we allow that to happen, most of us know that the real truth of the matter is as simple as 1-2-3.

1- We know that the government runs huge deficits each and every year.

2- We also know that We the People as taxpayers don't like tax increases and that We the People as recipients do like to get high and higher entitlements such as Social Security and Medicare.

3- Finally, we know that the first order of business for a politician is to get elected, and the second order of business is to get reelected.

As a result of this 1-2-3 scenario, a politician is extremely reluctant to reduce 'giveaways' and increase 'takeaways,' with giveaways being defined as no tax increases accompanied by high and increasing entitlement payments, and takeaways being defined as increasing taxes and reducing entitlements. See #3 above as giveaways get votes, and takeaways lose votes.

So our duly elected officials, aka politicians, don't make a habit of telling the truth to We the People about just how bad things are with respect to our financial condition as a nation, except to remind us that their side of the aisle has all the good guys and the other side has all the bad guys.

So what's the truth concerning our nation's financial situation? And what lies ahead for our kids and grandkids?

Well, for an answer to those simple questions, since America's Hidden Credit Card Bill tells the sad but simple story in straightforward English, let's see what it has to say:

"HOUSEHOLDS can’t spend, on a continuing basis, more than they earn. Countries can’t either, at least not over the long run. But countries can certainly leave the bill for their current spending to the young and to future generations. Official borrowing is the old-fashioned way to do this . . . . But borrowing in broad daylight has a drawback:

The more you do it, the more lenders worry about repayment, and the more interest they charge for their loans.

So there’s a different way to borrow — one that’s more subtle, harder to see and, therefore, cheaper to do. You still take in money, pledge to return it, and leave future generations on the hook. But you call the money you take in “taxes,” not “borrowing.” And you promise repayment in the form of pension, health care and other benefits, but you don’t record the present value of those promises as official debt.

Social Security is a prime example. It takes in money, via payroll taxes, while promising hefty retirement benefits in return. Dig deep into the appendix of the most recent Social Security Trustees Report, released on Monday, and you’ll find that the program’s unfunded obligation is $24.9 trillion “through the infinite horizon” (or a mere $10.6 trillion, as calculated through 2088). That’s nearly twice the $12.6 trillion in public debt held by the United States government.

Social Security is backed by something perhaps even more powerful than the full faith and credit of the government: the political power of some 100 million Americans 50 and older....

Even worse, the budget office raised what’s called the alternative fiscal scenario, the most realistic projection of fiscal outcomes absent major policy changes. . . .The fiscal gap — the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts — is, effectively, our nation’s credit card bill. Eliminating it, would require an immediate, permanent 59 percent increase in federal tax revenue. An immediate, permanent 38 percent cut in federal spending would also suffice. The longer we wait, the worse the pain. If, for example, we do nothing for 20 years, the requisite federal tax increase would be 70 percent, or the requisite spending cut, 43 percent. . . .

What we confront is not just an economics problem. It’s a moral issue. Will we continue to hide most of the bills we are bequeathing our children? Or will we, at long last, systematically measure all the bills and set about reducing them?"

Summing Up 

It's not a pretty picture. That's for sure.

But it's a realistic picture of where we're headed unless we start telling the truth and begin to address in earnest the enormous financial problems we are currently planning to hand off to future generations of Americans.

Unless we do get real and start telling each other the truth, and force our politicians to do likewise, our kids and grandkids are going to be the ones who get the humongous bill down the road.

And they will have every right and reason to "thank us" --- not today's or tomorrow's politicians, but us --- for sending it to them.

That's my take.

Thanks. Bob.