Friday, July 31, 2015

Medicare Turns 50 ... Time for a Check Up and Time for a Big Change ... A Really Big Change

We the People have trouble believing what our 'public servants' want us to accept as truth. That's because our elected officials almost always misrepresent things --- such as what some new government program will cost us down the road, for example.

Of course, we like the essentially free goodies promised at the time. We just don't like to pay full cost. We very much prefer bargains when making purchases, so the politicians tell us half truths when 'giving' us the good stuff.

In other words, the politically provided, vote getting, and popular free lunches are plentiful, enjoyed and appreciated --- until the bill comes due. But even then the financially necessary modifications, rollbacks or tax increases don't come. As a result, the unpaid bills keep piling up and the financial mess eventually ends up being an enormous and seemingly insoluble one --- like now.

And although it was long ago easily predictable, it wasn't predicted. It was ignored --- by all of us.

Whether the 'public servants' are confused, lying or mistaken when these programs are created is often in doubt, but that they are frequently wrong by tens and even hundreds of billions of dollars in annual cost estimates is indisputable.

The plain fact is that new initiatives usually cost multiples of what We the People are told at the time of enactment, but trying to undo that which has already been done is nigh impossible after the 'feel good' legislation is in effect. For example, ObamaCare will be with us for a very long time as has been the 'temporary' federal income tax legislation first passed in 1862 and made permanent by the 16th amendment to the U.S. Constitution in 1913.

We'll review the initial financial predictions associated with Medicare herein. Those fantasy financial projections are instructive and serve both as a history lesson and an indication of why we should never take government's cost projections seriously. Instead we should recognize them for what these legislated financial follies really are --- a humongous underestimation of the eventual costs to both current and future taxpayers.

Medicare at 50: Hello, Mid-Life Crisis is subtitled 'In 1967 the projected cost by 1990 was $12 billion. Actual cost: $100 billion. In seven years it will hit $1 trillion:'

"July 30 (represented) 50 years since President Lyndon B. Johnson signed Medicare into law. The only birthday gift this middle-age government program merits is a reality check.

Health insurance for senior citizens was part of LBJ’s expansion of the welfare state, all in the service of establishing a “Great Society.” Yet many beneficiaries today are struggling to secure access to high-quality care. Future beneficiaries, meanwhile, are forking over billions of dollars today to keep a program afloat that may be bankrupt when they retire—unless fundamental reforms are enacted.

Johnson had high hopes for Medicare. It grew, he said, from the “seeds of compassion and duty which have today flowered into care for the sick.” At the time, many people over 65 were unable to afford private health insurance. The president believed the new program would provide affordable, sustainable health care.

But Medicare spending has zoomed far beyond original expectations and is now anything but sustainable. In its first year, 1966, Medicare spent $3 billion. In 1967 the House Ways and Means Committee predicted that the program would cost $12 billion by 1990. It ended up costing $110 billion that year. Last year the program cost $511 billion, and seven years from now it will double to more than $1 trillion, according to the Kaiser Family Foundation. The latest projections from Medicare’s trustees, released this month, project that the program’s main trust fund, for hospital care, will be exhausted by 2030.

Medicare has been dogged by fraud and other improper payments—$60 billion overall in fiscal 2014, according to a recent report by the Government Accountability Office.

To keep Medicare spending under control, payments to health-care providers by the program have consistently lagged behind those made by private insurers. The American Hospital Association reports that hospitals took in 88 cents of every dollar spent caring for Medicare beneficiaries in 2013.

As a result nearly three in 10 seniors on Medicare struggle to find a primary-care doctor who will treat them, according to the Medicare Payment Advisory Commission. Another survey conducted by Jackson Healthcare, the health-care staffing company, found that 10% of the more than 2,000 physicians it surveyed don’t see Medicare patients at all. . . .

In 1965 eligibility for Medicare was set at age 65, which was reasonable enough, since life expectancy was 70. Today life expectancy is 79, and could reach 84 by 2050. We should be thrilled that people are living longer. But those extra years put additional strain on our health-care system....

The number of Medicare beneficiaries has also skyrocketed since the program’s inception. It initially served 19 million people. Today the program serves almost 50 million beneficiaries—and every day 10,000 baby boomers join the program’s ranks . . . .

If Medicare is to survive into old age, the program has to be converted from an open-ended entitlement to a system of means-tested vouchers. . . .

The way to honor Medicare on its 50th birthday is to fix what ails it. Without timely intervention, the program’s condition will only worsen."

Summing Up

We can't afford to continue all these government entitlement programs as they exist today.

Neither will our kids and grandkids be able to afford them as they inherit the current government dominated, debt ridden and slow growth economy that we've created.

Something's 'gotta give' and things must change real soon.

Similar to the costly and unaffordable system of public education in America (K-12 through college), means testing for eligibility, free choice and vouchers represent the only viable long term solution to the existing financially out-of-control system of government entitlements.

To do otherwise means that there's a financial, medical and human disaster in our future, and no American wants that.

That's my take.

Thanks. Bob.

Thursday, July 30, 2015

'Shopping Around' for Car Insurance .... The Impact of Credit Scores and Other Unrelated Factors ... Smart Buyers Beware

Smart Buyers know that it's wise to 'shop around' before making major purchases.

And buying or renewing a car insurance policy definitely falls in the category of major spending.

That said, the importance of shopping around for car insurance isn't well understood by most 'shoppers.'

Your car insurance premiums --- what you don't know can cost you  is an eye opener, and clicking on and reading the below referenced study by Consumer Reports is well worth the time:

"Car insurance costs can add up, and there’s no shortage of experts advising drivers how to keep costs down, but are you really saving when you think you are?

What you probably don’t know is that your credit score — that number representing your creditworthiness and used to determine rates on personal loans and mortgages — can impact your car insurance rates. . . .

Consumer Reports has released findings of a study looking at 2 billion price quotes from more than 700 companies and how you can get the best rates. . . .

 Among the key findings:

Rates swing based on credit score and which state you live in

People with just “good” credit scores paid $68 to $526 more than similar drivers with the best credit scores, depending on what state they called home. . . .

Taking an example in Florida, adult single drivers with a clean driving record and poor credit paid $1,552 more on average than if the exact same drivers had excellent credit and a drunken driving conviction. . . .

If a consumer faces a ruined score due to divorce, job loss or bankruptcy, he/she can request that the insurance company waive the score in calculating the premium.

These exceptions for extraordinary life circumstances are protections the insurance industry put into place, but few consumers seem to understand or exercise them. Despite about one million bankruptcies and one million divorces last year, according to Consumer Reports, insurance firms might get just one request a month among its thousands of policy holders. Other companies surveyed didn’t appear to keep any records of such requests.

Bundled savings? Student discounts?

You might think advertisements about bundling your various insurance policies or good student driver habits can save you money. But Consumer Reports says they don’t, despite a $6 billion annual spend on advertising.

A typical policyholder would save just $97 a year by bundling home and car insurance. Student-driver training discounts are worth very little — a mere $63 in annual savings nationally for CR’s sample family.. . .

“These practices are pricing consumers out of the market,” says Norma Garcia, senior attorney and manager of the financial services program at Consumers Union.

Insurance companies often create their own scores based on criteria they establish, making them different from FICO scores that consumers often access."

Summing Up 

To repeat, you should spend some time reviewing the Consumer Reports article referenced above. You'll be glad you did.

It's absolutely a Caveat Emptor world out there when it comes to buying car insurance, and Smart Buyers are well advised to be guided accordingly. 

Sellers of insurance will charge what the market will bear, and 'long term, loyal and satisfied' customers who don't routinely 'shop around' will end up paying the most. It's sad but true

As a result, Smart Buyers will 'shop around.'

Let's resolve to be both well informed and aggressively acting in our own best interests when purchasing or renewing car insurance or anything else.

That's my take.

Thanks. Bob.

Wednesday, July 29, 2015

Today's "Hot Stock Tip" ... Buy Stocks for the Long Haul ... Commissioned Stock Brokers and Short Term Oriented Financial Advisers Aren't Trusted By Individual Investors ... Nor Should They Be

In the long run, stocks are headed up, up and away. That's my take. In the short run, who knows where stock prices will go? That's my take too.

As Warren Buffett puts it, in the short term the stock market is a voting machine, and in the long term, it's a weighing machine. That's about as good a description as exists of the difference between short term trading volatility (as opposed to risk) and the longer term benefits of successful long term investing (where the real risk is not being invested).

So here's my longstanding and unwavering investment philosophy and approach: buy shares of solid dividend paying companies regularly and plan to own those shares for a long time. This individual investing approach tends to outperform other investment methodologies by a wide margin over time for one simple reason --- in a free market, long term ownership of the shares of solid companies and prudent risk taking are amply rewarded. If it were otherwise, nobody would take the risk of buying and holding stocks for the long haul.

So ignore the market's daily and weekly noises and try to pay no attention to what the pundits have to say about short term market movements.

For what it's worth, which may be nothing, my personal portfolio of stocks today pretty much avoids energy companies. And I'm staying away from materials, utilities and telecommunications stocks as well. I'm favoring (and have for a long time) large U.S. based pharmaceuticals, financials, technology, and industrial companies. I also own shares of a few consumer oriented companies.

Smart Buyers know that the short term price volatility of the stock market must never stop them from participating in the market's long term upward direction. So they know not to confuse volatility with risk, and especially the longer term risk of not being invested when the market increases in price. That's because they also know that over time, the unmistakable and clear tendency of share prices is to increase at a rate faster than inflation and that of other asset classes as well, including CDs, bonds, real estate, gold and other commodities.

Smart Buyers also know two other important things: (1) the more they pay for short term 'expert' financial advice from brokers, the less money their investments will earn for them over time; and (2) the more that they trade during volatile markets, the worse they will do over time.


So with all that as background, it's hardly surprising to hear that short term, transaction oriented, and commission compensated 'professional' stock brokers and related sales people aren't trusted by Smart Buyers.

Brokers Are Trusted Less Than Uber Drivers, Survey Finds is subtitled 'Among those who ranked lower: members of Congress.' The article tells about the lack of trust individual investors have in their financial advisers:

"Who are more trustworthy—financial advisers or Uber drivers?

More Americans seem to trust the drivers they hail on the popular car-service app than brokers, according to Personal Capital Corp., a Redwood City, Calif.-based registered investment adviser that manages more than $1.5 billion.

The firm surveyed 1,391 adults and found that more than half ranked drivers for Uber Technologies Inc. as the most or second-most trustworthy from a list of six types of workers, while 37% placed lawyers in the top spots. Only 31%, however, chose stockbrokers for one of their top two.

The three other groups that ranked even lower: advertising executives, used-car salesmen and members of Congress.

The survey isn’t the first to indicate that the financial-services industry has a trust problem. Earlier this year, a survey by public-relations firm Edelman indicated that trust in the financial-services industry around the world is lower than in almost every other industry. . . .

Personal Capital commissioned the online survey at a time when the U.S. Labor Department is weighing a new rule that would require advisers working with investors in 401(k) retirement plans and individual retirement accounts to be “fiduciaries” who put their clients’ interests above their own. Currently, securities brokers are generally held to a lower standard of recommending investments that are at least “suitable” for the individual. . . .

One question the survey participants were asked: “If you knew your broker was not required to provide advice that was always in your best interest, would you seek an alternative?” Ninety-four percent said yes.

“The big issue is trust—not only the fact that so many people do not currently trust their brokers, but also the fact that many who do trust them wouldn’t, if they knew exactly what was going on,” says Bill Harris, Personal Capital’s founder and chief executive."

Summing Up 

Commissioned stock brokers are salesmen, pure and simple. They are looking out for themselves --- not their paying clients.

These salesmen disguised as financial advisers are not knowledgeable and impartial long term investors, and Smart Buyers know that.

Smart Buyers also accept the reality of stock market volatility as an investing fact of life. They participate as objective long term investors and not as emotional short term traders.

Smart Buyers invest alongside experienced individual investors who charge little and have their own 'skin' in a portfolio emphasizing long term investments in dividend paying blue chip companies.

It's the common sense and 'smart' thing to do.

That's my take.

Thanks. Bob.

Tuesday, July 28, 2015

One Set of Government Employees Promises But Fails to Fund Future Promised Benefit Obligations Which Eventually Must Be Paid to Other Government Employees ... Meanwhile, They Don't Reveal to Taxpayers the Real Long Term Cost

Government officials and their counterparts in public sector unions frequently act shamefully and in secret when it comes to serving the best interests of We the People.

And this shameful behavior is not restricted to national politics. In fact, local communities, school districts and individual states are as much guilty of malfeasance in secret as are our national politicians. Our public servants often engage in one big secret ongoing and expensive scam and sham.

And here's why. They are afraid to explain to taxpayers why their negotiated deals will necessitate a huge increase in taxes. So they don't mention that either current or future taxpayers eventually must pay what one set of government employees in the here and now has promised to pay another set of government employees in the distant future.

The future taxpayer obligations are 'negotiated' by the government employees and union officials in private, and the deal's financial details and true costs aren't ever fully disclosed to those who pay the bills. It's in effect an expensive fraud on taxpayers, albeit perfectly legal.

And what makes it legal is that We the People have previously delegated our power to the government officials purportedly acting on our behalf, which they don't do.

If taxpayers ultimately dare to object, the courts are likely to make the taxpayers shut up and pay, because of the 'bargain' agreed to by the representatives of the taxpayers, the duly elected government officials.

Of course, taxpayers in effect pay for both teams of negotiators. They pay those who represent them at the bargaining table and then again for the union officials appointed to represent the public sector bargaining unit employees. It's a game of 'inside baseball' where only the union leaders and government officials know the rules. Meanwhile, the taxpayers pay.

And the rules of the game are whatever the union leaders and government officials deem them to be from time to time. The taxpayers then will be forced to pick up the final tab regardless of how high the final bill may be, and they will pay whether there are adequate funds set aside or not.

And normal accounting rules that apply to the private sector absolutely don't apply. That's how the complicit government and union leaders 'hide the ball' from the unsuspecting but paying taxpayers.

Now let's look at just one example of how this game of screw the taxpayer is played.

Relief for Cities' Budget-Busting Health-Care Costs is subtitled 'New government accounting rules enable local officials to get unfunded obligations to retirees under control:'

"The budgets of many cities and states will soon be disrupted by new accounting rules for retiree health plans. Local governments pay most of the health-insurance premiums for their retired employees—for example, from age 50 until Medicare at age 65, and sometimes for life. Nationwide, the total unfunded obligations of these plans are close to $1 trillion, according to a comprehensive recent study in the Journal of Health Economics.

The accounting rules, adopted in June by the Government Accounting Standards Board (GASB), require local governments for the first time to report their obligations for retiree health care as liabilities on their balance sheets. Local governments must also use a reasonable and uniform methodology to calculate the present value of these liabilities. These are both steps forward, enhancing transparency and accountability.

The new rules further provide an incentive for local governments to establish a dedicated trust with assets invested today to help pay health-care benefits in the future. But here the GASB takes one step backward, by allowing local governments to make overly optimistic assumptions, including excessive returns for the trust.

Local government health plans for retirees are on average only 6% funded, according to the Pew Charitable Trust. Because most cities pay these health-care costs almost entirely out of current budgets, they increasingly face two unattractive alternatives: raise taxes, or cut spending for such services as schools and police. . . .

Forcing cities to report to the public their long-term retiree health-care liabilities—calculated under a reasonable and uniform method—should provoke taxpayers to pressure officials to negotiate less-expensive benefits with the unions. It might also give unions a better sense of the trade-offs between asking for wage increases and higher benefits.

Nevertheless, a word of warning. If a city establishes a trust, taxpayers have to ensure that the government follows through with the necessary annual contributions—and that the government doesn’t hide true health-care liabilities by unrealistic projections of investment returns. As former New York Mayor Michael Bloomberg once said, while assuming a conservative investment portfolio will earn 8% a year is “absolutely hysterical,” reducing it to 7.5% or 7% is merely “totally indefensible.” "

Summing Up

So finally it seems that we're inching our way along toward truth telling in government about the future real cost to taxpayers of presently promised benefits. But now new problems of how much these future contributed funds invested will earn over time steps forward. And it's a big deal.

Because only later will come the almost certain return on investment shortfall by the government on funds invested. The bureaucrats will likely assume an annualized rate of return of ~8%, but these results won't be realized in a 'conservative' investment portfolio comprised of bonds and stocks. Thus, an already bad funding  problem will in all likelihood become an even worse one for future taxpayers

And since it's likely that a blended portfolio of bonds and stocks may average ~5% annually in the future, there won't be anywhere close to enough money to pay all the bills. In fact, the 'rule of 72' shows that an average annual investment return shortfall of 3% (8% assumed - 5% realized = 3% shortfall) will result in 50% less money in the pot than assumed after 24 years. 

Current and future taxpayers should at least be concerned, if not terrified.

Isn't it great that we have such a group of knowledgeable, hard working and dedicated group of public officials serving We the People?

Or is it in fact a sickening sight to see when we finally open our eyes to reality?

Sadly, that's my take.

Thanks. Bob.

Monday, July 27, 2015

Teachers Union Loses in North Carolina School Vouchers Case ... Score One for the Kids!

Teachers unions everywhere are unalterably opposed to school choice and vouchers for our nation's kids. That's a  shame, but that's also the truth.

Parental free choice with respect to how parents decide to spend already collected tax dollars on our schools and kids has long been forbidden by government bureaucrats.

In fact, government officials and aligned politicians at the behest of the teachers unions won't even permit parents and taxpayers to spend 50% less money educating their children at a school of their choice compared to the amount of money that government run public schools spend.

And it makes no difference how well or poorly the government run schools perform in comparison with the schools that the parents are not permitted to select for their children to attend with already available taxpayer funds.

Government monopolies don't worry about value for money expended, nor do they worry about the totality of money spent. And teachers unions spend boatloads of political money at election time as the biggest supporters of those government officials who help them maintain the pitiful status quo.

It's a cozy and expensive deal, and students, parents and taxpayers alike are the perpetual victims of the ongoing scam. Of course, the teachers unions are the biggest supporters of the Democratic Party, the faux 'champion of the poor and neglected.'

What a farce and what a scam and what a tragedy it all is. But there are glimmers of hope on the horizon, albeit faint glimmers at that.

Tar Heel School Voucher Victory is subtitled 'A scholarship program for poor kids survives a union legal assault:'

"School vouchers may be the most effective anti-poverty program around, yet they’re fought tooth and hammer by the teachers unions. Late last week the North Carolina Supreme Court awarded a victory to poor kids by protecting vouchers from another union attack.

Two years ago Tar Heel Republicans passed a modest reform offering low-income students $4,200 scholarships to attend qualifying private schools. The law requires, among other things, that private schools report graduation rates and test scores. It also mandates an annual report comparing the learning gains of voucher recipients and public school students.

Taxpayer plaintiffs backed by the union argued in a lawsuit that vouchers accomplish no “public purpose” because private schools don’t have to adhere to such state educational standards as teacher licensing requirements. You have to admire the gall of a union to argue that private schools are “unaccountable” when only one in five black fourth-graders at North Carolina public schools scored proficient in reading on the National Assessment of Educational Progress in 2013. According to the Institute for Justice, which represented voucher parents in the case, five of six low-income students fail the state’s end-of-grade math or reading tests.

North Carolina’s high court ruled 4-3 that vouchers serve a public purpose, and we’d say an urgent one. Last year about 4,500 qualifying low-income families applied for 2,400 slots in the state lottery, though only 1,200 vouchers were awarded because of a court injunction. Now that vouchers are out of legal limbo, some Republican legislators hope to expand the program and raise income eligibility limits. Good idea.

While the ruling is a victory for poor children, the case is a reminder that the unions will do everything possible to preserve their monopoly control over the lives of millions they fail to teach. It’s the greatest scandal in American public life."

Summing Up

$10,000 is roughly what taxpayers fork over for each public school student.

What if we simply gave volunteering parents $5,000 annually to spend as they see fit for the educational expenses of each school age child in the family?

And refunded to taxpayers the other $5,000 which would then no longer be spent in supporting the government run public school system?

And allowed the volunteering parents, kids and free marketplace to work out the best arrangement for educating the participating families and their children?

The taxpayers would love it as they would save more than 50% of what they currently pay in taxes for the government/public schools in their area.

The parents and kids would be able to pick and choose the best educational alternative for themselves.

Only the teachers unions and their joined at the hip politicians would cry foul.

So let's empower the consumer (parents and kids) and the taxpayer (that's We the People) to freely choose the producer (educational system).

That's my take.

Thanks. Bob.

Sunday, July 26, 2015

Helping 'Smart Buyers' Learn to Save and Invest Successfully for the Long Haul ... We Oldsters Have Many 'Lessons Learned' That We Can Share

In our economic lives, we are initially (1) consumers (toddlers and students) and later on (2) producers (whether wage or salary earners or entrepreneurs) and (3) taxpayers (including taxes of all kinds, such as federal, state and local income, property, sales, gas, utilities and indirect charges for tariffs, subsidies and the like).

It's a CPT (Consumer -- Producer --Taxpayer) thing for sure, but we're not taught to be good buyers along the way. That's where the Smart Buyer Club will try to offer some assistance to those interested and willing to challenge their longstanding views on various topics and their place in the world of economics.

In the end, economics is merely applied common sense or seeing both the 'seen and the unseen,' including the immediate and the future impact of our actions and inactions. But that common sense understanding usually comes only at  the end of the process and not at its inception.

So today let's begin, or continue, as the case may be, the process.  Herein we'll look briefly at the merits and simplicity of Smart Buying when it involves long term saving and investing.

A Smart Buyer will have developed a habit by early adulthood which emphasizes saving and investing for the long haul --- he will know not to borrow needlessly or excessively.

Individually I have long advocated and practiced an admittedly unorthodox style of investing --- either (1) a low cost S&P 500 index fund or (2) a low turnover portfolio which buys and holds a diversified basket of individual dividend paying blue chip stocks for the long haul. In my own case, I've done both but have had more success with #2, the method I've practiced for the past ~30 years.

So I recommend that individuals adopt the save and invest early in adulthood habit and choose either #1 or #2 as their simple, effective and perhaps boring plan. It's worked for me over many decades of both up and the inevitable down markets. But over time it's up and up by a lot over both inflation and other investing alternatives.

Now there's a just released study which points to #2 as the best choice for individual investors. Advisers' Stock Recommendations Drag Down Clients' Portfolios, Study Finds, provides the details:

"Investors trading stocks with assistance of financial advisers . . . are worse off overall than investors who trade independently, because their stock purchases underperform, the study says. . . .

There was “consistent evidence” that stock trades made by investors in conjunction with an adviser underperformed benchmarks as well as trades investors made independently, the researchers say.

Moreover, the underperformance was “particularly severe if the client-advisor contact was initiated by the adviser, suggesting that advisers actively approach clients with rather poor trading ideas,” the paper says. . . .

“We find that even without taking into account trading costs, which are typically higher for advised clients due to higher trading activity, the overall portfolios of advised clients underperform the portfolios of clients that always trade independently,” the researchers said in the paper."


And I recently came across the following common sense article which offers more food for thought for 'Smart Buyers.'  6 things to tell your grandkids about saving for retirement contains this valuable advice:

"Retirees: imagine starting over in your 20s, armed with what you know now. There would be no limit to what you could accomplish with decades of experience on your side.

Until scientists find a way to turn back the clock, the next best thing you can do is offer advice to the younger generation, particularly your grandchildren, so that they can avoid the pitfalls that only experience could help them navigate safely.

As your grandchildren graduate college and start their first jobs, now is the perfect time to teach them the importance of proper retirement planning, and the key tenets that got you to where you are today are still paramount: don't spend too much money, don't take on too much debt, and always plan for a rainy day. Continue to reinforce these concepts in the same manner your parents and grandparents did for you.

But just as cars and computers have grown in complexity over the years, so has the process of planning for retirement. Low interest rates, the impending extinction of pension funds, and increasingly complex financial markets require a far more sophisticated plan going forward.

You can help your grandchildren navigate these complexities by instilling upon them the importance of not just saving, but also investing by following six simple rules:
  • Invest in equities: Recent grads should be 100% invested in stocks for three reasons. 
  • First, equities have delivered an average annual return of 10%, which is the largest of any major asset class. Second, this cohort has a long time horizon, so if the market were to experience another dramatic selloff, they would have the time to build back any paper losses. Third, the effects of compounding will amplify returns over time.
  • Buy index funds: Active management of a stock portfolio requires skill, education, and experience. Younger investors have none of these, and those who try will be doing nothing more than speculating. Only buy low-cost index funds that track major indexes.
  • Never buy the company stock: Tell them to avoid the temptation to invest in their employer's stock. They may think that being an employee gives them an "edge," but it doesn't . . . .
  • Contribute monthly: Tell them to maximize 401(k) contributions to the point where an employer will match. Think of this as "free money" that's deposited automatically with every paycheck. Long-term investors ignore entry prices and never try to "time the market." They invest monthly no matter what the short-term trend in the equity market may indicate.
  • Establish a Roth IRA: Taxes are only going one direction, so millennials should set up Roth IRAs before their incomes exceed the legal limit for these highly advantageous retirement accounts. Paying the tax now while their tax brackets are lower and before the politicians raise them higher will ensure that they get to keep more of their hard-earned investment.
  • Learn how money works: Our educational system is utterly useless when it comes to preparing children for one of the most important subjects, which is how money works. Buy them books, pay for personal finance classes, have them sit with your financial adviser, and tell them to always keep three to four months of living expenses in cash (mandatory) because bad things will happen to them.
The days of easy retirement planning are over and won't be returning for a very long time, but you can help them get on the right track by following these guidelines."

Summing Up

The foregoing is solid general advice for young, middle age and old investors, one and all.

That said, I differ with the writer about what Smart Buyers should assume as the likely annualized rates of return on stocks going forward. While the writer is correct in stating that stocks have returned annually 10% on average these past several decades, that's not likely to be the case in the foreseeable future.

And there are several reasons why an annual average return on stocks in the future of ~6% to 7% is more likely than the 10% historical rate. 

First, I foresee lower inflation in the future, which by itself is a good thing. Thus, a 6% return in a 2% inflation environment would be the same as an 10% return in a 4% inflationary economy. That leaves 2% unexplained since 6-2 is 2 less than 10-4.

Besides lower inflation, here are five other important factors which I believe will negatively impact future economic growth and stock market returns: (1) debt levels are higher; (2) our society is aging; (3) women, already now a big part of the workforce, won't be an additonal large adder going forward; (4) fewer people as a percentage of the total population will be working; and (5) our unproductive public sector (local, state and federal) will continue to grow at the expense of the more productive private sector. Facts are stubborn things.

Still, the returns on stocks will exceed those on bonds, cash, real estate and gold by a whole bunch both over the next several years and over a longer period of time. They always have and they will continue to do so. 

So regardless of these future 'headwinds, Smart Buyers will make regular contributions to their 401(k)/IRA and invest in either a low cost index fund or a diversified basket of dividend paying and growing stocks.

And Smart Buyers will know enough to pay low cost but knowledgeable financial advisers to help them benefit fully from the compounding 'Rule of 72' over their working career.

Perhaps the best advice the Smart Buyers need to follow, however, is something not yet mentioned: AVOID UNNECESSARY DEBT.

You see, that money which we get as 'producers' and isn't kept but is instead 'consumed' is money that can't be saved. And money that isn't saved can't be invested.

And the 'Smart Buyer' knows what's smart and not smart to do ---- while he's still young enough to do something about it.

That's my take.

Thanks. Bob.

Saturday, July 25, 2015

Smart Buying 101 ... Predatory Government Student Loans are 'Awarded' to Unknowing and Unprepared Students

A Smart Buyer is always in the process of acquiring more basic financial knowledge and experience.

And on the way to becoming a Smart Buyer, our budding enthusiast comes to understand and internalize that the motives and actions of the seller are self interested and fundamentally different than are his own.

But perhaps equally important, he realizes that the government 'help' being offered by self interested politicians isn't intended or even designed to help him. He knows that all things political are in fact political things.

In addition to knowing that politics sucks, the Smart Buyer knows that sellers, including those leading government sponsored entities, are in it to win it for themselves, and that it really ia a caveat emptor, Buyer Beware, world out there. At that point he's not a cynic but rather an official card carrying member of the 'Smart Buyer' Club.

So with that background, let's consider two questions today --- (1) Is our government acting as a predatory lender when it grants federal student loans to unknowing and non-smart buyers?(2) Does our K-12 educational curriculum adequately prepare graduates and prospective college students to be 'Smart Buyers?'

Sadly, and in my opinion, the correct answers to those two questions are yes and no, respectively. But a Smart Buyer knows that the answer to such questions must come from himself or herself, so what do you think?

Well, one pundit takes my side on #1 and proceeds to argue the case convincingly in Uncle Sam, Predatory Lender?:'

"Is the federal government a predatory lender?

A predatory lender makes loans with unfair or abusive terms and conditions, where the lender coerces, induces or deceives the borrower into accepting the loan. A predatory lender may also take advantage of a borrower’s lack of understanding and lack of sophistication with regard to complicated financial transactions.

The U.S. Department of Education makes loans without regard to the borrower’s future ability to repay the debt. . . . Aggregate loan limits are not based on the student’s likely income after graduation. . . .

Colleges are not permitted to categorically reduce loan limits based on the borrower’s degree level, academic major or enrollment status. For example, students who are enrolled on a half-time basis can borrow the same amount as full-time students. The U.S. Department of Education has issued guidance that restricts the colleges’ statutory authority to reduce loan amounts, thereby preventing colleges from taking steps to ensure that students graduate with an affordable amount of debt. . . .

Policymakers often argue that easy access to federal loans provides low-income students with access to a postsecondary education. But loans are not really financial aid, as they don’t cut college costs. Loans must be repaid, usually with interest. Loans are not a solution if they bury borrowers in more debt than they can afford to repay."


Now let's address question #2. As a starting point, let's agree that taxpayers generously fund K-12 education and that many students graduate from high school each year and head for college unprepared academically. And that even those students who are otherwise prepared academically are most likely to be entering college unprepared to make basic financial decisions about borrowing and its future financial effects.

And that's where our 'friendly' high cost college recruiters and 'helpful' high cost government lenders enter the picture, often saddling the unknowing and unprepared students with a lifetime obligation to repay high cost predatory loans.

The 'friendly' high cost and unproductive college administrations and 'helpful' government officials are unaffected by all this predatory lending, of course. On the other hand, the unknowing ones, aka the taxpayers and students, are destined to pick up the final tab as the 'game's' ultimate losers. They will get to pay, and pay, and then pay some more, for a very long time to come. Finally, the 'party' ends.

Summing Up

And to make the 'friendly' and helpful' scam complete, the unprepared student (educationally as well as with respect to basic financial understanding) upon entering college may be required to take remedial courses before he later drops out of college. Of course, these courses for the unprepared both take additional time and money which is usually in the form of additional student loans.

Money loaned by the government isn't 'free' money. For that matter, Pell Grants aren't free either.

In the end, somebody pays, and that somebody is either the student or the taxpayer.

Meanwhile, K-12 schools, colleges, government officials, public sector union leaders and other elected politicians play the very profitable game (for them) of 'you scratch my back and I'll scratch yours' with OPM (Other People's Money).

And that OPM was once MOM (My Own Money) before it was taken from the students, their families and other taxpayers, either in the here and now or later in life.

All too often the college experience is an expensive, unproductive and life changing experience leading to a lifetime of unnecessary and burdensome debt.

That's my take.

Thanks. Bob.

Thursday, July 23, 2015

Individual Investing the 'Smart Club' Way ... Government Provided Social Security and Medicare Benefits Must Be Supplemented with MOM (My Own Money)

Here are a few words that a 'Smart Buyer' lives by ... Caveat Emptor, aka Let the Buyer Beware.

And here are a few more ... Self Reliance is safer than Government Reliance.

In both instances it's a simple MOM thing.

A 'Smart Buyer' also knows the answers to two important questions about his investment adviser/broker --- (1) Does the adviser/broker have his skin in the same game? --- that is, does he invest his own money in the same way that he proposes to invest the money of the Smart Buyer? (2) How much is the 'pro' paying himself, both directly and indirectly, from the money the Smart Buyer entrusts to him for investing purposes?

A 'Smart Club' buyer quickly learns to do what's in his best interests. He also knows two critical facts: (1) how the investment adviser invests his own money and (2) how much he is being compensated, both directly and indirectly, by the buyer.

And a smart buyer doesn't follow blindly the advice and counsel of sales people disguised as investing experts who offer to sell to the unsuspecting customer their preferred and highly commissioned products. These products are 'pushed' by the seller because they pay the selling 'adviser' the highest commissions. It's almost never because the products represent the best investment for the buyer. A smart buyer knows this and is guided accordingly.

To repeat, it's Caveat Emptor (Let the Buyer Beware) whenever a seller and a potential buyer interact. So the smart buyer who is forewarned is sufficiently forearmed.

How your adviser can rip you off --- and you'll never know tells has the tale of too many individual investors:

"I talk to dozens of people each week about their investments. After a while, you begin to notice a peculiar similarity among many of them. They've had the same retirement adviser for years, yet they strongly distrust that person. . . .

They know they pay too much in fees. They know high costs hurt their chances of retiring on time. But they find it hard to break long-standing . . . relationships.

Department of Labor Secretary Thomas Perez . . . wants anyone calling himself a retirement adviser — such as stockbrokers, insurance agents and investment managers — to act in their clients' best interests. {NOTE: Here's my take. Formally, that would create a formal fiduciary relationship as opposed to the typical buy-sell arrangement. Practically it would mean little, if anything.}

Tooth and nail

It's that simple, yet the industry is fighting the proposed rule tooth and nail. Imagine proposing a law that says the opposite — that retirement advisers do not have to put clients first. . . .

Many people mistakenly believe that a fiduciary standard already is common practice, perhaps even the law. Nearly half of Americans believe investment advisers put them first and nearly 60% believe that retirement advisers going by the titles "financial adviser" or "financial consultant" do so as well.

Unfortunately, it's just not true. . . .

The industry is loudly proclaiming to any and all who will listen that the net effect of the coming Department of Labor ruling, should it be approved, is that everyday retirement investors will no longer have access to much-needed retirement advice.

As you might have guessed, when it comes to Washington the opposite is actually true. The business of Wall Street isn't about giving personalized, careful advice. It's about gathering assets as quickly as possible, slapping on stiff fees and hoping that nobody complains. . . .

Putting clients first is what people intuitively believe is right. It's time to put those words into action and ensure that our retirements aren't eaten alive by a retirement industry happy to keep us all in the dark."

{NOTE: Caveat Emptor is the approach followed by the 'Smart Buyer.' He realizes that he sits on one side of the bargaining table, and that the seller will sit on the other side. It's that simple.

So whether the seller is called a fiduciary, a sales person, a bank lending officer, a college recruiter, a car dealer, a realtor or something else, he always has motivation which is at variance with that of the buyer. He's a self interested compensated agent of the seller --- not that of the buyer. And that's fair enough for the 'Smart Buyer' since he knows the way the game is played.}



It's caveat emptor all over again as future Social Security and Medicare benefits will need to be supplemented by private savings.

A 'Smart Buyer' will want to retire comfortably and live out his years without worrying about financial matters.

That means he won't rely exclusively on Social Security and Medicare benefits. He will depend on his younger self to take care of his older self when retirement time comes --- and it will come sooner than his younger self thinks it will.}

Social Security disability fund now faces 'urgent threat' of 2016 shortfall: trustees has this alarming but unsurprising information about the forthcoming financial shortfalls of Social Security and Medicare:

"The Social Security disability-insurance program faces the “urgent threat” of reserve depletion in late 2016 unless Congress acts to replenish the fund . . . . Trustees said that Congress should take “prompt corrective action” to shore up the disability fund. In the past, Congress has diverted tax revenue from Social Security’s main retirement program to allocate more revenue to disability benefits . . . .

Treasury Secretary Jacob Lew said he was confident that Congress would come up with a fix. {NOTE: Taking from Social Security to fund the Disability program's shortfall will only hasten the Social Security fund's insolvency.}

If the disability fund is depleted, it will be able to pay only 81% of benefits.

Social Security’s combined funds will be solvent until 2034 . . . .

The Medicare hospital-insurance trust fund will be able to continue paying full benefits without any changes in the law through 2030 . . . .

Social Security and Medicare together accounted for 42% of federal spending in fiscal year 2014. {NOTE: As recently as 2010, the combined total was 'only' 36% of federal spending. The trend definitely is neither the future retiree's nor the future taxpayer's friend.}

The programs face long-term challenges as millions of baby boomers reach retirement age.

Total Medicare costs will grow from about 3.5% of gross domestic product in 2014 to 5.4% of GDP by 2035."

Summing Up

(1) Whether the seller is designated as a fiduciary or not by government regulators doesn't change one unassailable fact. He's a self interested seller and if he's being compensated based on commissions and transactions, he's not objective, even if he is knowledgeable about investing, which most sellers aren't.

And very few of these sales personel disguised as investing experts have much, if anything, of their own 'skin invested.' It's the skin of the buyer that they want to get.

Thus, the knowledgeable 'Smart Buyer' will adopt and internalize Caveat Emptor as his way of buying and investing.

He knows that a low cost and transparently compensated adviser, and one who is already invested in the same way he's advising the buyer to invest, is the 'Smart Buyer's' best choice.

(2) And long before he reaches retirement age, he will fully understand and internalize that Social Security and Medicare are continuously becoming less reliable as the primary financial security providers for his retirement years.

Thus, the 'Smart Buyer' will save and invest in a 401(k)/IRA during his working years in order  that he will be able to live comfortably when the soon-to-come oldster years arrive.

Each of us needs to make a serious effort to become a 'Smart Buyer.' Welcome to the 'Club.'

That's my take.

Thanks. Bob.

Wednesday, July 22, 2015

The 'Smart Buyer' Club ... An Idea Whose Time Has Come? ... When Purchasing Insurance (and Everything Else) ... Smokey Robinson Had It Right ... You Better 'Shop Around'

My fellow oldsters will remember the 1960 hit recording 'Shop Around' by Smokey Robinson and the Miracles. The mother told her son that before marrying, he'd better 'Shop Around.'

That was good advice then, and it's still good advice. But it doesn't just apply to spousal selection. In fact, when buying car insurance (and everything else too), the motherly 'Shop Around' admonition is solid counsel and should be folowed.

The $4,600 mistake most drivers make offers this solid advice for buyers of car insurance:

"Fifteen minutes can save you 15% or more — and you don’t have to become a Geico consumer to make that happen.

When it comes to car insurance, Americans often can’t be bothered to shop around, surveys show. One in three drivers say they never shop around for car insurance quotes and another 30% say they only shop around every few years — which may explain why the average driver hasn’t switched car insurance companies in 12 years . . . .

A study released earlier this year . . . revealed that in 2014 just 16.8% of U.S. consumers shopped around for car insurance (they got an average of only 2.2 quotes when they did), and another survey released this year from the nonprofit Insurance Research Council found that only about a quarter of drivers had shopped for car insurance within the past year.

The reasons that Americans don’t shop around are likely due, in part, to the hurdles that come with it. Indeed, 88% of drivers find shopping for car insurance to be a frustrating experience -- with 50% saying that it’s too time consuming, 33% saying it’s hard to compare prices and 5% saying they don’t trust the advertised prices and have privacy concerns, according to a nationally representative survey of 500 adults by financial site NerdWallet.

The problem: Not shopping around is a very costly mistake. The average annual savings that drivers get by switching to a new insurer is $387, according to J.D. Power . . . . That means the average driver -- who . . . hasn’t switched car insurance companies in 12 years -- will waste more than $4,600 on auto insurance over that period.

The solution, of course, is a simple one: shop often — experts say you should review your policy and competitive policies every year— and shop smart. Here’s how to start the shopping process. . . .

Get at least three quotes . . . .

Make sure the quotes are for policies that are alike with the same limits on things like liability, collision, comprehensive, as well as the same deductible . . . . Those who haven’t shopped around in a while may need to up their liability coverage if they have more assets now, and if their car is much older now, may want to cut back their comprehensive coverage . . . .

Ask about discounts

When getting your quotes, ask the representative about any discounts you might qualify for that could lower your rates . . . . Common discounts might include: being a good student (77% of the insurance carriers surveyed by offered this with an average 16% discount), having a home policy with the same company (68% offered this with a 9% discount), paying the bill upfront (46% offered this with a 9% discount), being married (41% offered this with a 14% discount) and taking a driver training course (41% offered this with a 7% average discount). You can find some of the less common discounts auto insurers may offer here."

Summing Up

We're seriously considering starting something like a 'Smart Buyer' Club of like minded individuals who want to help each other learn more about smart buying in order not to pay excessively for the multitude of products and services that we buy.

And whether the purchased item is car insurance, other insurance, car buying, home buying, appliance buying, stocks, mutual funds, mortgage loans, home equity loans, student loans, credit card charges, maintenance agreements, bank fees, stock brokerage fees, money management fees, or a wide variety of other fee based programs, it adds up to a whole bunch of money needlessly paid by 'non-smart' buyers and a whole bunch of money easily saved by 'smart buyers.'

Our 'Smart Buyer' Club's only goal will be to assist 'members' in becoming well informed with respect to how the buy/sell game is usually played by self interested sellers of all types.

We will help each 'Smart Buyer' to internalize and then share with fellow 'Smart Buyers' such things as why commissioned sales people and lenders of all kinds are incentivized to get the target buyer to purchase more expensive products and services than a 'Smart Buyer' would purchase.

And we will help each 'member' understand that the seller's or lender's offer of years of low monthly payments will lead to needlessly high interest and principal payments.

And finally, a 'Smart Buyer' will know that he has the power in any potential buy/sell transaction for one simple reason --- if no transaction is completed and no purchase is made, no commissions will be paid to the selling agent and no principal payments, interest charges, or other fees will go to the seller, servicer or lender. 100% of zero is zero.

Smokey's song told the 'Smart Buyer' Club's story in two words: 'Shop Around.'

That's my take, too. What about you?

Thanks. Bob.

Tuesday, July 21, 2015

Too Many Young Americans Lack the Fundamental Knowledge Concerning How Our Democracy Works ... Retired U.S. Supreme Court Justice Sandra Day O'Connor Offers a Simple Solution

Retired U.S. Supreme Court Justice Sandra Day O'Connor became so concerned that young Americans lacked the preparation to be active and informed citizens that she decided to do something about it. So she created web based iCivics, inc. in order to empower teachers and prepare the next generation of students to become knowledgeable and engaged citizens.

The referenced website is, and it's a fun, informative and educational experience available to all ages. I recommend that you take some time to familiarize yourself with its many attributes and then check to see if the schools in your area are using this outstanding and free award winning teaching tool.

Teaching Better Civics for Better Citizens is subtitled 'American students are alarmingly unfamiliar with the essential elements of democracy:'

"The results of the National Assessment of Educational Progress (NAEP) . . . revealed that our country’s eighth-graders aren’t just failing at civics and history. They fundamentally do not understand our democratic system of government . . . .

The scores from the test known as the Nation’s Report Card show that only 18% of the students are proficient in history, and less than a quarter are proficient in civics. For example, fewer than one-third of students tested knew that “the government of the United States should be a democracy” is a political belief shared by most people in this country.

Education policy leaders have correctly recognized the importance of science, technology, engineering and math (STEM) to prepare children for the jobs of the future, and to enable the U.S. to compete in the 21st-century marketplace. The NAEP tells us that if schools ignore civics and social studies, they risk excluding students forever from American democracy. While we fully support the vast resources committed to promote STEM subjects, we seriously question the cost of doing so at the expense of the humanities.

Civic education cannot be an afterthought. Citizenship is a skill that must be taught over time with the same devotion we give to reading, math and the pursuit of scientific knowledge. . . .

More civics courses alone is not the answer. Civics education itself needs an overhaul that makes it relevant to digital learners. This is why we have joined forces to create games and digital content that meet students where they are—online and gaming—and help them create a sort of “muscle memory” for citizenship. We want to give students an immersive civic-education experience that inspires them to learn how to use the legal system, the legislature and the electoral process to solve problems in their communities and effectively communicate with their government.

As the next election nears, it’s not enough to have young people read about elections in history books. Digital games such as “Win the White House,” a product of the Web-based nonprofit education project founded by Justice O’Connor, put students inside a virtual election. They can learn how to navigate the process and experience its complexities in a way that is fun and engaging and on their terms.

Nationally, more than 72,000 teachers have created accounts with iCivics, giving digital civic education to more than 7.5 million students. It is now used by more than half the nation’s middle-school social-studies teachers, and that is cause for celebration. The question is how to reach the other half. . . .

Citizenship begins long before students can vote. Civic education will help them exercise their vote, and participate in our democracy, in an informed manner. The NAEP results indicate that it’s not the students who are failing to learn, but we who are failing to teach them.

Ms. O’Connor, a retired U.S. Supreme Court justice, is the founder of iCivics, a nonprofit company producing digital civics curriculum for schools. Mr. Glenn is a former astronaut and former Democratic U.S. senator from Ohio (1974-99)."

Summing Up

The U.S. occupies a special place of distinction as a unique shaper of human history.

And We the People have long been blessed with abundant opportunities and have been fortunate to live in 'the land of the free and the home of the brave.'

As a diversified group of Americans, we worship many religions, our racial mix is varied, we represent differing political views on many different issues, and we are of different sexes across all age groups.

But all that said, we have something in common which is vastly more important than all of the foregoing combined; we're each free and opportunity rich citizens of the greatest nation in the history of the world.

We really should learn more about this great and unique country of ours.

And former Supreme Court of the United States Justice O'Connor has made that possible, and even fun, for anybody willing to take the time to do so.

That should include all of us --- young, old and in-between. It's a shared responsibility and civic duty of each and every American.

That's my take.

Thanks. Bob.

Monday, July 20, 2015

'Loving Public Education, for Others' ... Politicians and School Choice

Our recent post of July 14 was titled 'The Hypocrisy of Democratic Leaders and Public Schools....' After that posting, a couple of us discussed it.

We both wondered why a clear and strong majority of poor and middle class parents continue to vote for and support the status quo in public education at election time, even though it's totally against their best interests and the best interests of their children for them to do so. We arrived at no good answers.

On the other hand, we easily agreed that the politicians and teachers union leadership clearly understood that they risked nothing at the ballot box by continuing to ignore the best interests of their constituents and steadfast supporters come election time.

As a society, we apparently are more interested in talking instead of doing when it comes to fully preparing our young people to lead America into the globally competitive future awaiting them upon the completion of their 'school days.'

The following letter on the lack of widespread vouchers and school choice in America adds more facts to the conversation and says what needs to be said about parental choice and taxpayer funded K-12 education in America. The letter to the editor lays out the sad and sick 'let the public and kids be damned' attitudes and behaviors of far too many of our elitist public officials.

Loving Public Education, for Others is subtitled 'The people most enamored with public education repeatedly refuse to expose their own children to it:'

"It is fortuitous that your July 14 editorial “All Arne’s Children” appears next to the Letters headline “GOP Can and Should Make a Good Pitch to Minorities.” It has been more than 50 years since George Wallace stood in an Alabama school-house door and sought to deprive minority students access to a decent education. Fast forward five decades and Arne Duncan and the Democratic Party are only lacking the state troopers and the dogs.

Mr. Duncan’s “better thee than me” attitude regarding public education is hardly rare among Democratic politicians. The statistics are consistently infuriating. The people most enamored with public education repeatedly refuse to expose their own children to it. The last Democratic president to enroll a child in a Washington, D.C., public school was Jimmy Carter. In a few years, Amy will celebrate her 50th birthday. If you are a member of the House or Senate, your kids are three times more likely to attend a private institution than the average U.S. student. This statistic is especially disturbing considering the fact that few, if any, House or Senate members reside in low-income neighborhoods where poor public schools are most likely to be found. Mr. Duncan’s decision may reek of hypocrisy, but it is certainly rational in Chicago where more than 40% of public-school teachers send their own offspring to private schools....

Your address does not mandate where you buy groceries or access your health care, why should it determine where your child is educated?"

Summing Up

Politics is strange.

It's also cruel.

Public sector unions are counter productive and have a huge negative impact on our American society at the local, state and national levels, one and all.

For a current example of why public sector teachers unions are bad for society and opposed to the best interests of We the People, please read Parent-Trigger V-Day.

The ongoing general public's apathy with respect to the need to guarantee a quality educational opportunity for each and all of America's children is a real head scratcher, at least for me.

I'm for taxpayer funded vouchers and free choice for one and all. How about you?

Thanks. Bob.

Sunday, July 19, 2015

Why College and Many Other Government Subsidized Programs Cost Too Much ... We the People Pay Excessively for 'Self Interested' Government Spending Escapades

Government is a legal fiction which produces exactly nothing.

Every single dollar government spends on whatever it purchases, including the services of government workers, health care workers and educators, as examples, it first must take from We the People, the producers of America's wealth.

And to add insult to injury, the plain fact is that government intermediation costs are too expensive, even if often -- but certainly not always -- what government does on our behalf is necessary.

For example, the more government pays to public sector employees and the more public sector employees there are, the more taxes it must raise from current or future taxpayers. The formula is straightforward --- government spends, or ENABLES others to spend, and current or future taxpayers pay. It's that simple.

For example, and only one of many, it should come as no surprise that salaries and expenses for college employees are in the final analysis paid for by taxpayers. The deserving or even undeserving Pell Grant or student loan recipients are merely conduits -- frequently unknowing intermediaries -- for passing money from taxpayers to the real beneficiaries -- the government employees or 'assisted' institutions.

But of one thing we can always be certain. The politicians will first and foremost look out for themselves.

For an  example of this self serving political bipartisanship at work, Did Senators Commit Health Insurance Fraud? and subtitled 'Did Senators and their staff pretend to be "small businesses" to get subsidies? provides ample clarity:

"A coalition of 10 organizations has filed an ethics complaint calling for an investigation into whether senators and their staff committed fraud when they submitted applications to the health insurance exchange in Washington, D.C. . . .

The organizations involved are calling for an investigation into whether members of Congress and their staff violated laws by claiming to be a “small business” in order to buy their insurance and qualify for taxpayer-funded subsidies.

“The Affordable Care Act (ACA), better known as Obamacare, required that members of Congress and their staff enroll in individual plans through the healthcare exchanges created by the law,” the group said in a press release. “As open enrollment approached in 2014, members and staff realized that by enrolling as individuals, they would no longer receive generous taxpayer-funded contributions to help pay their insurance premiums as they had for decades under the Federal Employees Health Benefits Program. They would instead only qualify for subsidies if their household income was less than 400 percent of the federal poverty level, just like millions of other Americans that had to purchase insurance in the individual market.”

The group notes that senators worked with the White House and the Office of Personnel Management for guidance on how to enroll in the Small Business Health Options Program in order to skirt any obstacles.

On October 2, 2013, the Office of Personnel and Management (OPM) used a federal regulation to deem Congress a small business despite its having more than 12,000 employees and dependents."

Now let's look into the  high cost of attending college today, and the real motives of our 'public servants' as they team up with the government supported education establishment.

A surprising reason for rising college tuition says this:

"Rising college tuition has stoked the ire of students, families as well as politicians, and a surprising cause may be partially to blame: Expanded access to money to pay for school from the federal government.

For every extra dollar available to students in subsidized federal aid, colleges raise tuition by an estimated 65 cents on average, according to a staff report released by the Federal Reserve Bank of New York last week. The paper, which studies tuition patterns following Congress’ decision to increase borrowing limits in the mid 2000s, provides some insight into a question economists and higher education experts have debated for years — whether boosting access to federal aid incentivizes colleges to raise prices by giving students more ways to pay for school.

“It’s a pretty simple economic theory that if you have access to more money you’re probably going to be willing to pay for more for something,” said Eric Best, a professor at Jackson State University who co-authored the book “The Student Loan Mess: How Good Intentions Created a Trillion-Dollar Problem” with his father, Joel.

William Bennett, the Secretary of Education from 1985 to 1988, is probably the public figure most associated with this theory, which came to be known as the “Bennett Hypothesis” after Bennett argued in 1987 that increases in federal financial aid “have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.”

Summing Up

Unfortunately, government 'help' is usually unnecessarily expensive. In my view, that's in large part because a market based pricing system is lacking and a monopoly prevails.

And the monopoly is administered by self interested politicians seeking the political support of the self interested real beneficiaries of that monopolistic 'help.'

That represents bad news for the rest of We the People. As the government spends or causes others to spend more and more on less and less, the more current and future taxpaying citizens must pay.

That's not hard to understand, but it often goes unsaid. So I said it.

In any case, government is becoming an ever bigger and largely unproductive burden for We the People.

Our economy, our kids, our nation's taxpayers and our families are paying, and will continue to pay, a heavy price for all this 'public service.'

Politics sucks.

That's my take.

Thanks. Bob.,

Thursday, July 16, 2015

Call Me Old School and a Member of the 'Luckiest Generation' ... Let's Bring Back America's 'Good Old Days' of World Leadership, Economic Prosperity, Good Jobs and National Security

OK. I admit it. I'm the old school type. Excessive debt is a bad thing. Too little economic growth and an economy with a bloated and unproductive public sector is a bad thing. A thriving and growing private sector is a good thing and provides good jobs. A world leading and strong U.S. economy is the only lasting way to assuring a secure nation and a peaceful world. And all 'old school' Americans want that.

I was raised by two non-college educated parents who both worked hard and were children of the Depression and members of the 'Greatest Generation.' That was a good thing for me as I developed a strong aversion to ever experiencing a future economic depression and a healthy regard for being an American --- the nation that saved the world from Hitler and the Nazis in WWII.

My parents encouraged me to get good grades through high school so I could go to college, 'get a good education,' and a good job. They wanted me to have it better than they did.

So I did all those things, and now I'm glad I did. And I graduated debt free, having received scholarships and working part time and summer jobs during my six years of higher education. I guess that makes me part of the 'Luckiest Generation.'

Maybe in reality the 'good old days' weren't all that great, but they weren't all that bad --- especially compared to today's ongoing mess. And that's especially true with respect to debt management at the individual, city, state, national and worldwide levels, one and all.

At the end of WWII, the U.S. was the model of national strength, economic growth, individual opportunity and fiscal responsibility. Alas, those days are gone, but hopefully not forever.

It's not always, if ever, going to be easy, but it is achievable --- attaining individual financial freedom and security, that is.

Being debt free is a good thing. Call me old school.

Financial success requires sacrifice puts it bluntly:

"We have a savings crisis in this country. Much has been written about it, and there are many reasons for it, but the concept of personal sacrifice receives precious little mention. . . .

I recently stumbled on a video of Gene Simmons singing (in WWII video) with our troops the songs that we sang about the troops in those early days. We sang them in our schools and homes.We all knew them by heart and frequently heard them on the radio console, the focal point of our living room.

Patriotism and support of our troops was incredibly important to our teachers, family, friends, Hollywood, and the media — including popular cartoonists like Bill Mauldin, artists like Norman Rockwell and entertainers like Bob Hope. Posters had mottos like "Loose lips sink ships." We all had Victory Gardens and ate Spam and chipped beef for our meat. There were no turkeys at Thanksgiving or Christmas — or at any other time for that matter. The troops deserved those.

The economics of those times were substantially different. We all saved money, even as school children. We could buy 25 cent stamps, which when we had enough, could then buy a $25 war bond. The national savings rate was about 25% of after-tax income compared with 5% today. That's even more impressive when you consider that taxes took far more of everyone's income in that period. . . .

We have reached the point where few people save enough for retirement, pensions are underfunded and the Social Security Trust is rapidly running out or money. Instead of encouraging saving, the government wants us to spend more. Industry agrees and bombards us with advertisements wherever we look.

Our national debt is soaring exponentially. Much of that is owned by foreigners as contrasted with the times of my youth when the national debt was high too — but it was owned by American families through their savings bond purchases. Local governments and the states fare worse now too being burdened with cost-of-living-adjusted pensions with ever growing number of retirees exacerbated by the annual pension increases from inflation adjustments. . . .

We have dug ourselves a financial hole from which no politician has an escape solution. We compounded the problem by our consumerism together with personal and college education debts ....We show little understanding that a small sacrifice now will make a big difference in our lives later.

The time has come for people to emphasize savings and our government to support and encourage it. . . . Individuals have to save 5% to 10% more of their income. Government debt needs more powerful medication. Maybe we need . . . a government with a longer view than the next election."

Summing Up

It's not only Greece that has a financial mess. France, Italy, Portugal and other European countries aren't all that far behind the Greeks. And then there are Russia, Iran, Venezuela, Brazil and so forth. It's a mess.

Nor here in America are our problems confined to places in the news like Puerto Rico, Chicago, Illinois, Detroit, Michigan, or Stockton, California. They're everywhere.

The world is awash in debt --- both countries and individuals alike.

Something's gotta give --- and hopefully sooner than later.

The real and lasting road to recovery begins with We the People --- each of us.

That's my take.

Thanks. Bob.

Wednesday, July 15, 2015

KISS (Keep It Simple, Stupid) Investing Is Essential for Successful Long Term Individual Investors ... Harvard Economics Professor Offers Some Bad Advice

Things that at first appear complicated, once the fundamentals are understood, become simple. And so it is with individuals investing for the long haul in order to achieve financial security and independence for themselves and their families.

But occasionally even Harvard economics professors fail to internalize the basics and get it wrong. Then they spread bad advice to all those listening.

As you will see below, the Harvard professor believes investing for individuals is too complicated. He then opines that the solution for these incapable individual investors is to practice 'robo' investing by putting their money in target date funds which automatically rotate into more bonds and less stocks as the investor ages.

In my view, he's wrong on both counts: (1) successful long term investing for individuals doesn't have to be hard, and (2) owning bonds is neither a good idea now nor for the foreseeable future.

Now let's briefly examine how and why the KISS method works.

If I earn $100 and spend $150, I need to borrow $50. That not only leaves me with nothing for saving and investing but requires that I spend less in the future in order to service my debt. In other words, the future required interest and principal payments will reduce my future opportunities for spending, saving and investing by much more than $50.

On the other hand, if I earn $100 and spend $50, that means I can save and invest $50 for my future wants and needs, including retirement. In addition, that $50 invested over the next 40 years at a compound growth rate of 9% will become $1,600. $1,600 is greater than zero, so the decision to spend and borrow NOW or save and invest for the FUTURE, if made logically, is an easy one.

And if I know that a portfolio of diversified blue chip and dividend growing individual stocks has historically earned 9% annually over a long period of time, then I also know the KISS way to get that 9% annualized average return on my investment in stocks. And if I don't want to invest in individual stocks at the outset or even later, I can choose a low cost S&P 500 index fund instead. Either way works although the individual stock route works better for those who make the effort to know what's going on with the shares of the companies they choose to 'own' over time.

And that's just a simple fact of life which I will know once I understand and internalize the mathematical rule of 72 --- that 9% X 8 years will double my initial investment and that after 40 years my money will have doubled 5 times.

$50 to $100 to $200 to $400 to $800 to $1,600 after 40 years at 9% annually. There's nothing hard about the simple math. And after 48 years it would likely have doubled again to $3,200. Not a bad return on an initial investment of $50.

So why is a Harvard economics professor having trouble understanding the simple stuff described above? Beats me.

Why Investing Is So Complicated, and How to Make It Simpler is worthwhile reading, even if it is written by a somewhat confused and mistaken Harvard economics professor. In his own words, here goes:

"I finally faced up to something I had been dreading.
After years of procrastinating, I logged on to my retirement account. . . . once I started to examine my portfolio, I began to feel anxious. Some of my money was in mutual funds, but I had no sense of how I chose them. And the rest of my money was in cash, earning virtually nothing; how had I let it sit there for so long? . . .
I seemed to have fallen into a recurrent nightmare, one in which I am taking a final exam in a class I never attended and a subject I don’t understand. This was even more embarrassing: I am, after all, a trained economist. When new acquaintances learn what I do for a living, they routinely ask, “So how should I invest my money?” I wish I knew.
Can’t the market fix things? If individuals are forced to choose their investments, why doesn’t the market make these choices easier?
By all accounts, the world of mutual funds, which is the basis for many retirement investments, is a competitive market. At the end of 2014, there were more than 20,000 mutual funds. On top of that, there are hundreds of exchange-traded funds. While many of these funds sit in a few big-name companies, one would hardly call this a monopolized industry. We’ve got plenty of choices.
The market seems to work well for consumers in other industries. The producers of smartphones, for example, compete fiercely to make simple and elegant user interfaces. If they can make it a breeze to interact with billions of lines of code, why can’t somebody simplify the alchemy of finance?
What distinguishes the market for investments is our inability to judge whether we have chosen well. Once I’ve used a phone for a few weeks, I can tell whether it was worth the money. By contrast, I may not know for decades (if ever) whether an investment was wise or foolish. Does a low return signal a prudent choice or a missed opportunity? And by the time the answer becomes clear, it’s already too late. You’ve got to live with your bad choice.
What’s more, the invisible hand of competition does not do well by consumers with limited understanding. Rather than eliminating biases, markets often cater to them. For example, many consumers choose a mutual fund by looking at last year’s returns, despite warnings that they should not do so. This creates a winner-take-all situation with the highest-performing funds getting most of the investors. You might think this encourages funds to produce higher returns, and that might seem to be a good thing.
But what it actually produces is a perverse incentive for fund companies to take risks. That’s because investors often choose what to do with their money once, and leave it there for a long time. Faced with that reality, the most profitable strategy for a mutual fund company can be to simply take risks in the hope of gaining high short-term returns. Win this high-return lottery and you can draw many investors from whom you will earn fees for decades. Big families of funds can start new funds regularly, each with a different risk strategy. For the companies, it’s like buying many lottery tickets.
It doesn’t matter for the company if many of the funds are clunkers as long as they end up with a few near the top of the performance rankings. For consumers of these funds, though, it’s a losing proposition.
Educating consumers to be better purchasers seems a sensible idea, but an example from recent history illustrates the problem with that. For a long time, the simple investment advice given to consumers has been “buy an index fund.” Index funds are such standardized products — mirroring the Standard & Poor’s 500-stock index does not require much management — that just about all of them were initially low cost while offering wonderful diversification.
Consumers have been buying index funds, and the market has responded by providing hundreds of them. Nearly all E.T.F.s are index funds.
But the market has also responded by charging high fees for this standardized product. In 2004, Ali Hortacsu and Chad Syverson, economists at the University of Chicago, found that index funds had as much variability in fees as their more labor-intensive actively managed counterparts. And these fees are nothing to be scoffed at — paying 1 percent more every single year in fees can compound over a lifetime to noticeably lower returns. . . .

Even if we receive good financial advice, following it can be hard: Saving more and consuming less is on par with going to the gym more and eating less. Some people can do it easily. Many can’t. . . .

What’s to be done now? You are on your own, unfortunately.

But I can tell you what I did. I chose a target retirement fund. With these funds, you simply decide on a target retirement year. As you age — and move closer to the target date — these funds automatically shift their holdings from riskier stocks to less risky bonds. . . .

The biggest lesson, I realized, was one that faces me all of the time: The biggest cost of fear is paralysis.
It is easy to make a mistake in choosing investments. But in an effort to avoid an error, I had been making an even bigger error. As I procrastinated, my money was uninvested and earning zero returns.
That, surely, is not the path to a happy retirement."
1- The good professor makes several good points --- especially the last one about delay and paralysis by analysis.

We don't have to make doing something that is simple hard. But as adults and individual investors we do need to get started early and keep going through the muck and the mud, thereby letting time work for instead of against our long term financial security and welfare.

2- But he also did an 'unsmart' thing with his own money by investing in a target date fund. That's because the future won't look the same as the past when it comes to fixed income returns. {NOTE: The bond portion is the 'unsmart' thing as I explained in the July 12 post 'Individual Investors Should Stay Away From Bonds . . . .'}
3- And in addition to that unforced error by buying bonds, he's also wrong when he says that investing is so complicated that the average person can't learn the basics and then apply them by properly managing his own account.

He just has to be willing to take the time and make the effort to apply the KISS methodology and invest in a diversified portfolio consisting of the shares of diversified blue chip dividend growing companies --- either that or invest in a low cost passive S&P 500 index fund from Vanguard or Fidelity.
Summing UP

The KISS method of investing means this for individual savers and investors --- it all begins with the common sense understanding that long term personal financial security depends on living within our means and that our family's long term financial well is vastly more important than which car we buy when we're young --- and that borrowing to excess prevents saving and investing --- and that unnecessary borrowing at an early age can be harmful in a game changing and lasting way to our family's long term financial health.
As a result, taking the necessary time to understand and internalize the benefits of saving and investing in stocks for the long haul is worth everyone's while.
And with sustained effort will come valuable knowledge which will turn into financial security and assets to last a lifetime.
Thanks. Bob.