Student Loans: Absolute Returns Mislead Absolutely

I grew up in a household that was very fiscally responsible. My father instilled at an early age the power of saving and investing. If I accumulated $50 in allowance he would be willing to match my savings.For a nine year, old, or any investor for that matter doubling your return annually is quite impressive. For my birthday, every year my grandfather would give me a $100 savings bond, which now that I think of it, I have no idea where those went. When I was seventeen years old I began a Roth IRA, and when I was nineteen I purchased equity in my first company that went bankrupt (GT Technologies). Not only was I encouraged to save but my parents always preached the importance of paying your debt. Even to the point where having debt was like subscribing to the Black Plague. Even if debt couldn’t wipe out one third of the European population it could definitely wipe out a large portion of the stock market (i.e. Long Term Capital Management had liabilities over $100 billion, this translated to an effective leverage ratio of more than 250-to-1 and a government bailout of multiple banks). As a recent college graduate, I have my first bout with debt in the form of student loans.

As 2016 comes to an end, most recent collegiate graduates are familiar with the statistics revolving around student loans: In the United States there is approximately $1.26 trillion in total US student loan debt, 44.2 million Americans had student loan debt, student loan delinquency rates are around 11.1%, and average student loan payments for borrowers aged 20 to 30 years amount to $351 per month (Student Loan Hero). According to Student Loan Hero, the debt statistics by student loan status are as follows:

• Loans in repayment – $468.1 billion; 15.7 million borrowers
• Loans in deferment – $101.7 billion; 3.4 million borrowers
• Loans in forbearance – $102.8 billion; 2.7 million borrowers
• Loans in default – $63.2 billion; 3.9 million borrowers
• Loans in grace period – $42.6 billion; 1.7 million borrowers

It’s no secret that students have become increasingly dependent on student loans to fund their four years at both public and private schools. The Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year and the 2017 student loan debt is only expected to increase. With more of an emphasis on the importance of college education, it seems that these costs won’t be going away anytime soon. With over $1 trillion in government funded student loans there has been a misguided hope of debt forgiveness. The impact of student loans is one of reasons Bernie Sanders was a popular candidate. In a current low-growth, low interest rate economy, these debt forgiveness programs could even be harmful to the people they’re meant to help. Ohio University developmental economist Julia Paxton states:

“One of the problems of debt forgiveness is that it sets a precedent that similar loans in the future will also be forgiven. Although the loans are allocated toward education, money is fungible and will have the net impact of increasing the spending ability of students in other areas of their lives. As the expectation of repayment obligation falls, borrowers may enter into a situation where they take on higher levels of debt and take more risks. This will lead to a weakened ability to repay, creating a vicious cycle that hurts the financial sector and the credit ratings of the borrowers.”

And with a Precedent-Elect that aims to lower taxes and increase infrastructure spending, the ability for government funding of tuition will be increasingly sparse. While the idea of young Americans entering into the work force with mountains of debt is in no way uplifting, awareness of the loan management strategies helps to alleviate the load.

From the first student loan meeting to your last payment you hear the same advice: Make your loan payments fit your budget even if that means student loan refinancing, have a debt management strategy, focus on long term planning and find the payoff date, avoid repayment programs, pay off higher interest rate loans first, private loans offer less flexibility, etc. etc. The list goes on and on, but one of the most worn out pieces of advice is to pay off your debt early. In my household, this has been a common theme emphasized by my parents. My sister paid off her $17,000 in eight months, saving approximately $7,000 in interest that she would have accumulated if she followed the ten-year payment plan. Using a basic loan amortization schedule, a $25,000 student loan with 5.0% interest with a 10-year payback period would cost $208 a month. By paying $700 a month instead of $288 enables the borrower to repay the loan in just over 3 years. By paying the principal down more quickly, you would be paying lower interest charges. By paying extra, the entire loan would cost $27,000 rather than $31,000. While it seems like a no brainer to pay off debt early, an intelligent investor knows that single-minded returns tend to mislead and absolute returns mislead absolutely.

Would you rather invest in a security that offers 5% or 8% returns, ceterus paribus? Any rationale investor would choose the latter. As you look at your personal and financial goals, it’s time to compare interest rates. Is paying off student loans early right for you or should you focus on your saving goals and invest in the ever enticing stock market. If you have an interest rate over 5%, you may want to make paying off debt your main priority. High interest rates can tack on a lot of extra money to your balance, making the repayment period even longer. But if you have a low interest rate—especially around 2%—you may be able to get better returns on your money in the stock market.  With investing, you take advantage of compound interest and put your money to work for you over time. Both options have there benefits and depend on the risk tolerance of the borrower.

Pros of Waiting to Payoff Loans and Investing

• Compounding interest and higher investment returns
• Many employers match investments in 401K
• Invest in tax advantage retirement accounts (i.e. Roth IRA, 401K)
• Could receive tax deductions on student loans
• Potential student loan forgiveness programs

Pros of Paying Off Student Loans Early

• Guaranteed return
• Many investments are taxable at a higher rate (15% if you are in a 25% or higher tax bracket)
• Clean Conscious
• Good Credit Score!

As for myself, I am comfortable prepaying an interest rate of 5% on my student loans and forgoing a rigorous investment plan. On Friday December 17^th, the Dow Jones had risen 10% for 2016 and continues to approach 20,000. Wall Street forecasts for 2017 are unsurprisingly bullish as the year ends on a strong note. While there is a chance that markets will continue to outperform in 2017, major indices continue to appear overvalued. While I will pay off my loans as soon as possible, I also set aside money to max out my 401K, add to my Roth IRA, and include a safety net in case of emergencies. So whether you choose to pay off your student loans early or to invest your money, continue to make minimum payments toward your federal loans, and choose a repayment term that works for you.

 

http://www.bankrate.com/finance/college-finance/repay-college-loans-fast-1.aspx#ixzz4TmC7uSWW

http://www.nytimes.com/2016li12/16/your-money/wall-streets-annual-stock-forecasts-bullish-and-often-wrong.html?

https://studentloanhero.com/calculators/student-loan-payoff-vs-invest-calculator/

 

Day-Dreaming on a Plane

Approximately one year ago, my family and I were returning home to Arizona from Colorado. We had just spent a weekend at our cabin in the isolated Poudre Canyon which is host to trout with whirling disease, a rock shaped like a sleeping elephant and the semi-docile spirit of my great grandfather who likes to peruse the cabin grounds during the late hours of the night. I think everyone, including my usually composed mother, was nursing a hangover on the flight back to our home in Scottsdale. The four-day trip was marked by an atmosphere of jubilance and excessive celebration as we christened my sister’s newly engaged fiancé into the Ammons family (they were wed a few weeks ago from today). I knew he would assimilate well when I saw that he wasn’t traumatized by my dad’s befuddled hootin’ and hollerin’ or my mom’s inebriated peppiness. There was a lot of dancing on the tables, strumming on the guitar, and the losers in Backgammon only expressed a tiny bit of animosity.

On the flight back I took refuge in my preferred window seat where I sat by a tall, lanky man who seemed to be in his mid-fifties. He initiated the conversation, with much of the first fifteen to twenty minutes being controlled by small talk as I eagerly peered out the window. Slowly, we started finding small similarities between us helping to build rapport. We talked about Wake Forest, finance and he provided me with advice on how to navigate the ‘real world’. This man, who later introduced himself as John, kept me wide-eyed with his adventurous anecdotes that provided color to what would have been a rather dull plane ride. John was an explorer and outdoorsmen. He climbed every major peak in the world including Everest, Kilamanjaro, and K2. John was also an avid heli skier which involves jumping out of helicopters onto back country ski slopes. There was no doubt that this man was arrogant, relishing in the ability to impress an impressible young professional such as myself. I also fueled the fire; unafraid to encourage him to talk about his accomplishments (listening to his stories seemed better than getting frustrated at being unable to complete the medium difficulty Sudoku puzzle in the in-flight magazine).

Later in the flight, I found out that John went to Colorado College. “Colorado College!” I exclaimed, “Both of my parents went to CC! And my sister… and my cousin… and now that I mention it I had an aunt and uncle attend there also”. He seemed less enthusiastic than I would have thought, as most people love talking about their alma mater. After some prying I discovered that he graduated in 1981. Quickly trying to do some mental math, attempting to emulate the great Sherlock Holmes, I proudly deduced that my parents graduated around that time. “Do you know Anne and Dave Ammons?” I eagerly inquired. He did know them, maybe too well, as I would later find out from my mother that his advances on her may have been too forward.

While this coincidence alone is worthy enough to write a blog post on, I want make it more applicable to the finance / networking spectrum. One of the most compelling topics that John and I discussed on the plane, and the reason that I’m writing about this almost a year later, included his current business ventures and investments. He placed great emphasis on his energy investments, claiming that he had invested in the only technology that provided an alternative to fracking. While it could have been his ego talking, John smugly told of how this tech was more efficient, cheaper, and environmentally friendly than fracking. ‘Geese’, I thought, ‘if it’s as great as he says it is then why haven’t I heard about this energy initiative sooner and why is the market not blowing up about this?’ Well, the conversation reached a stopping point soon after. I didn’t question him further, and he didn’t go into too much detail. After he reunited for a brief awkward interaction with my parents in the terminal, we separated on our own separate paths.

John’s description of his new environmentally sustainable oil initiatives left me with nothing more than a day-dream. As my interest in the commodities industry grew, I would always wonder what would happen if that kind of technology took off, and if I had been a part of it. Currently in a job with an average salary and little room for mobility within the company, day-dreaming about being at the forefront of a booming oil market has become more and more frequent. Finally, I decided if there was even the slightest chance of getting involved in this venture, why not take it? I’m at the age where I can take risks and every day that I spend in corporate audit severely decreases my chances of becoming a multi-millionaire. So I decided to send an email to John. The contents looked something like this:

“This is a stretch, I understand that. There’s a slim chance that you are even still working on this venture or that you remember who I am. But if there is even the slightest possibility for me to break into a creative VC environment, then I will pursue it. I’m extremely ambitious and motivated to become more knowledgeable about the industry. I can be an asset providing assistance with market research, M&A valuation, budgeting, and client services. I’m at an age where I’m willing to take high risks and I am extremely hungry to succeed.

Even on a short flight, I recognized that you have a great deal of experience and business acumen and I feel I could learn a lot from you. If you have any work for me, if there is any chance for me to be involved in these energy initiatives, please let me know. You won’t regret it.”

Bold. Straight-forward. A little melodramatic. I understand that the email expressed an unnecessary sense of urgency. But even after a year, John did respond. He sent me an article on the Plasma Pulse technology that is being developed and hopefully will be marketed on a large scale to oil companies. This technology is able to revive wells after the fracking effect begins to fade. With increased fracking regulation in some US states such as California, there is potential for this project to expand.

Now, there may be no way for John to get me involved in this business. I don’t have any experience in the oil industry and only have three months of professional experience (in Corporate Audit nonetheless). Who knows, maybe this two-hour plane flight could have a huge impact on my life. Regardless, this narrative is a wonderful example of the importance of networking, taking advantage of life’s chances, not being afraid to take risks, and the benefits of sharing a few drinks with a stranger on an airplane.

On Compromise: My grandfather’s take on the polarization of America

Bob Natiello WG56

On Compromise

When asked, “Just exactly what are your politics,” I always answer with a unique expression of neutrality. “I’m a member of the Algebra Party,” I state. “Whatever you do to one side of the equation, you have to do to the other.”

Though my words are nothing more than a personal refusal to commit to one particular party, they seldom fail to draw looks of suspicion. You can’t be neutral, their eyes say. You have to choose one side or the other. Yet recent Gallup polls show that the percentage of voters who call themselves Independents has grown to 43%. In the same time frame, the percentage who say they’re Democrats has dropped from 36% to 30%. The percentage of voters defining themselves as Republicans has also fallen, but by a more modest two points: 28% to 26%.

These declines in party allegiance show a distinct change in the body politic. Today, more voters identify themselves as Independent than as Democrat or as Republican. A nagging discomfort with government is behind this shift, political scientists say—an obvious failure of our leaders to get something done.

In her recent book, Penn president, Amy Gutmann offers her insight into the root cause of these feelings. With co-author, Dennis Thompson, she cites failure to compromise as the culprit that prevents us from moving ahead. Even when compromise might favor a common good—improved education or a fairer tax code, for example—politicians on both sides seem unwilling to yield their cherished beliefs in favor of cooperation. In an interview on CBS’s 60 Minutes, John Boehner, the former Speaker of the House, gave this answer to Lesley Stahl’s question about compromise, “I reject the word.” I believe this unyielding partisan mindset keeps our nation from reaching consensus.

A major reason behind this intransigence is the media. They’ve taken the simple act of changing one’s mind, redubbed it “flip-flopping” and virtually criminalized it. In such an adversarial atmosphere, what politician—of either stripe—would dare compromise? Concede a point to your opposition by backing off, and the media will skewer you for backing down.

In the coming 10-day stretch from July 18th to 28th, both parties will have completed their quadrennial conventions in Cleveland and Philadelphia. Before the delegates settle down to contemplate their sweeping November victory, they might seriously consider this Gutmann/Thompson advice: partisan dominance is not the way to eliminate gridlock. Compromise is. Politicians can extricate our nation from the mire of the status quo if they see compromise not as defeat, but as victory for both sides. The below sonnet uses poetry to make the point. When both sides compromise, both sides can claim victory.

 

On Compromise

I fear our leaders and their rigid minds

Unbending, taut and loath to compromise.

I dread the mindset that so often blinds

Their thinking—and their rush to polarize.

Can they not join to seek the common good?

No crime exists in seeing eye-to-eye.

Why can’t they fuse their aims as leaders should?

And to their endless combat bid goodbye.

When prized beliefs can yield to middle ground

The dry-rot status quo can be dismissed.

When seeds of conflict find no fertile mound

Then progress can take root and growth persist.

When leaders meet halfway, their journey’s done

And then both sides can claim their victory’s won.

My Role Model: The American Renaissance Man

The abundant stream of blog posts finally dried up in these past two weeks.  I was on such a roll before I traveled to Charlotte for Bank of America Orientation and I continued my decline as I became acclimated to the first few days on the job in New York. To all of my fair-weathered fans who no longer provide me support, those who scoffed when they saw that I had yet to post a new article – I hope you suffer the same fate as Ramsey Bolton. To my endearing, eternally grateful fans that anxiously waited for me to share my revolutionary, enlightening financial knowledge, I express my dearest gratitude. Yes, believe it or not, sometimes I construct a reality where my blog is revered by many, detested by few, and read by even more. But alas, I shall remain bold in spirit and hope that my next post doesn’t scare you (do I mean myself?) away (if it hasn’t already). The first couple days at Bank of America left me with little desire to write about a finance related topic. With almost every article in the news covering all possible perspectives of Brexit there isn’t much to report anyway. However, the commute to and from New Jersey to my office inspired me to write about one of America’s most significant figures. One of the positives of traveling by the NJ transit is that I have had plenty of time to read about the great American President, Abraham Lincoln.

The biography Lincoln written by David Herbert Donald has been a thrilling read thus far. Donald’s detailed scrutiny into the life of ‘Honest Abe’ leads little to interpretation. After a few weeks of consistently reading this book I have yet to even get to his time as president. While I’m sure his career in politics and at the White House are compelling the truly motivating part of Lincoln’s life lies in the early stages of his adulthood. Lincoln embodied the spirit of a Renaissance man. In a way this post is a summary of all of the odd jobs worked by Abe on his way to Congress. But to me it is a lesson on how to balance working extremely hard while capitalizing on the opportunities life presents you.

When first my father settled here,

‘Twas then the frontier line:

The panther’s scream, filled night with fear

And bears preyed on the swine.

This poem was written by Lincoln when he visited his family’s home many years after his childhood. The future US President was originally a Daniel Boone, John “Grizzly” Adams type figure. He recalled that in his childhood “We all hunted pretty much all the time” and at the age of eight an axe for chopping wood was placed into his hands due to his large figure. Lincoln’s childhood haunted him for years to come as his mother Nancy passed away from sickness. In a morbid poem written when he returned to his neighborhood he wrote:

I range the fields with pensive tread,

And pace the hollow rooms,

And feel (companion of the dead)

I’m living in the tombs.

Even without the dark childhood memories, Lincoln was itching to leave his home in Little Pigeon Creek. He was obsessed with books, studying, and poetry. He felt compelled to move on and couldn’t be bound to hard manual labor that lacked any ambition and education. After leaving his home Lincoln moved to New Salem. In the next ten years he tried nearly every type of work offered in Illinois. This included carpenter, a ferry director, a store clerk, a post man, soldier, blacksmith, surveyor, lawyer and a politician. In one of his first positions Abraham Lincoln was an assistant at a saw mill. He was attentive, always chatting with customers and meeting new people. When he didn’t have work Lincoln would be studying some form of education. He had a sharp mind and was able to recall a fifty-six line poem from memory. But Lincoln wasn’t just an intelligent young adult intent on studying grammar or geometry. One of my favorite stories of Abe begins when the store manager brags to a rough group of wilder boys that Lincoln is one of the smartest and strongest men in New Salem. According to the anecdote:

“The Clary’s Grove boys called his bluff. They cared not at all about Lincoln’s mental superiority, but they dared him to test his strength in a wrestling match with their champion, Jack Armstrong… …In the collective memory of New Salem residents, the contest was an epic one, and various versions survived… (including) how Armstong’s followers threatened collectively to lick the man who had defeated their champion until Lincoln volunteered to take them all on, but on at a time”.

Lincoln proved that he not only was an intelligent fellow but that he also was tough, strong and courageous. These characteristics helped him become very well-liked in New Salem as one person remarked, “Lincoln had nothing, only plenty of friends”.

Later Lincoln enlisted in the Black Hawk War. The conflict began when the Black Hawk tribe returned to Illinois trying to reclaim their native land. Lincoln enlisted and was elected as a militia captain. While his service wasn’t necessarily heroic or worthy of any great stories it adds another badge to the chest of the future leader.

Lincoln continued partaking in odd jobs such as chopping wood and being hired as the service postmaster delivering mail to the surrounding community. He was a man of integrity who felt that it was his duty to assist his neighbors. When a person didn’t pick up their mail at the post office he would put the letters in his large hat and often times walk miles to deliver them in person. Throughout these years he was barely making enough money to get by.

I could go on and on about the different successes Lincoln had with various jobs and even his failures also. But the point that I’m trying to make is that Lincoln was so gritty. He rarely complained despite the poor living conditions, back-breaking labor, and having little money. He enjoyed the little things such as meeting new people, reading, debating and the occasional wrestling match. Through these interactions he created an opportunity for himself to be elected as a state legislator. He was self-taught in law and became one of the most well-known lawyers living in Illinois.

The man had so many skills. So many qualities that made him special. He was never entitled. Lincoln started out in a situation where the majority of people would aspire to nothing. The rest is history. This man is my role model because he was able to grind through his early years expecting nothing from anybody.

 

 

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P.S. Lincoln was no Don Juan. He was insanely awkward around women and could barely talk to eligible ladies. He was gangly, dirty and always wore clothes that were too small for him. He often struggled in his pursuit for a wife. But in this regard he again persevered. He married Mary Owens who was described as, “a handsome young woman with black hair, dark eyes, fair skin, and magnificent white teeth. She impressed everyone with her gay and lively disposition…”. For myself, a man that has been single basically his whole life this is very encouraging.

 

Source:

Donald, David Herbert. Lincoln. New York: Simon & Schuster, 1995. Print.

Be Like Mayo: Invest in a Roth IRA

Millennials are lazy, entitled and can’t get out of their parent’s basement. Millennials are wizards of social media, liberal, and ready to change the world. However, the majority of ‘change’ that occurs is when my generation, over social media, calls out a micro aggression or demonizes anyone who does something that isn’t politically correct. It’s
easy to get behind a cause when all you have to do is log on to Facebook and watch an out-of-context video that makes you feel smarter. Students are showing just how coddled our generation is. Whether the Halloween incident at Yale or the response to the Trump-chalkers at Emory, these students are doing an excellent job at censoring anyone from saying anything provocative for the fear of being defamed. While I disagree with the majority of these negative stereotypes, some of these events have me worried about the future of America. What is most unsettling to me is not the student protests or the dependence on technology but it is the state of our financial affairs. Millennials have less money to spend, more student loans, and are frequently becoming stuck in low quality jobs. Millennials, born between 1980 and 2000, are shaping our economy as they reach their prime spending and working years. But how can they shape our economy positively when they are in such a miserable financial state? Instead of using social media as a platform to complain about being the 99% or to promote Bernie Sanders’s policy of ‘free tuition’ we can take much more tangible steps to be financially secure. The first and perhaps most important step is to set up a Roth IRA.

To understand why you should invest in a Roth IRA first let’s look at why millennials don’t have any money. According to a Goldman Sachs report on Millennial Infographics in 2013 millennials have less money to spend due to lower employment levels and smaller incomes. While unemployment has been declining to its lowest levels in 2008 what good is it if 44% of millennials are stuck in low-wage, dead-end jobs (Stahl)?

Not only do we have less money to spend but we are drowning in student debt. In the Goldman Report student loans have risen by almost 100%. The tuition at my alma mater Wake Forest will be $48,746 in 2016-17 and I can tell you that I’m not excited to balance paying my student loans with the extra high cost of living in New York.

 

These economic conditions are changing the way our society operates. With lingering effects from the Great Recession and uncertainty about the future of the economy millennials are putting off important events in their lives such as marriage and purchasing their first house.

But worst of all millennials are failing to save money. Data from the Federal Reserve show that millennials took more of a hit on their retirement accounts and they’ve recovered much less than the portfolios of the entire population as a whole. This table shows that the net worth of today’s 29- to 34-year-olds, that of older millennials, is significantly lower than the 2007 net worth of that year’s 29- to 34-year-olds. Jillian Berman of Marketwatch writes in 2015 that 52% of the millennials between the ages of 25 – 34 have less than $1000 in savings. 52%! How can they expect to do anything in the future: have kids, go on vacation, or retire?

You don’t need to be just another loser with no money. It’s time to save more efficiently and more effectively. How do you rise above these dreadful statistics? Invest in a Roth IRA. A Roth IRA is an individual retirement account which is an ideal savings vehicle for young, lower-income workers who won’t miss the upfront tax deduction and who will benefit from decades of tax-free, compounded growth. You can contribute to a Roth IRA at any age as long as you have earned income from a job. The Roth IRA is flexible. You can withdraw your contributions at any time without taxes or penalty and most income groups are eligible, especially at a younger age.

Roth IRAs are insanely easy to set up. You can use multiple IRA service providers such as Fidelity, Merrill Edge and E*Trade which provide one-on-one interactions with very little fees if any at all. Want to go at it by yourself and choose your own portfolio? Investing Guru Benjamin Graham always thought that it was best if the defensive investor put 90% of their portfolios into market index funds and left another 10% in their portfolio to fool around with. The best part of a Roth IRA is that you can start right away.

Most people are hesitant to start saving early – They want to wait until they’ve paid off debt or until they have a higher paying job. Many people don’t start seriously saving until their 30s. To put off saving is ludicrous because if you start saving early you get to utilize a very important and powerful tool. That tool is compounded interest. Compounded interest
occurs when the interest that accrues to an amount of money in turn accrues interest itself. Compounding provides an easy path to becoming a millionaire by the time you retire. I like to think of it as free money. Your investments into your savings account continue to build and build upon each other until you have a large chunk of change in your pocket… tax-free.

If you still aren’t convinced that compounding interest is a big deal let me show you an example using a Roth IRA calculator. Two different scenarios. In the first, you start your IRA at 29, putting in $2,000 initially and thereafter investing a meager $1,200 a year. That’s only $100 a month. With a 7% return annually by the time you’re 65 you will have $214,053. Not bad. Here’s the kicker.In the second scenario you do the same exact thing only this time you start saving eight years earlier at the age of 21. By the time you retire you will have $380,956. That’s a 78% increase! That’s the power of compounding and I cannot emphasize enough the importance of starting early.

21 years: $52,800 total contribution.              29 years: $43,200 total

 

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”  — Albert Einstein

 

Millennials are market movers, changing the economic and social landscape. With rising college debt, an increase in part-time jobs, and lingering effects from the Great Recession it is important that the younger generation prudently saves through the use of a Roth IRA. Don’t hesitate, don’t just shrug off what I’m telling you, go to your computers, talk to your parents or your financial adviser and go invest in your future. Right now people my age have a very valuable commodity that most people don’t have. That commodity is time. Take advantage of this time and start saving money. It’s time to remove ourselves from the financial constraints of being a millennial and from the ensuing stereotypes.

So remember be like Mayo.

 

 

http://www.bankrate.com/calculators/retirement/roth-ira-plan-calculator.aspxhttps://

http://www.businessinsider.com/amazing-power-of-compound-interest-2014-7

http://www.goldmansachs.com/our-thinking/pages/millennials/

http://www.marketwatch.com/story/more-than-half-of-millennials-have-less-than-1000-2015-12-14

http://www.rentjungle.com/average-rent-in-new-york-rent-trends/

http://www.rothira.com/how-to-start-a-roth-ira#start

http://www.rothira.com/how-to-start-a-roth-ira#start

The Anthropological Adage

While I may not have any current travel plans to go to the hills of Mongolia, discover some uncharted island or to explore the depths of Atlantis, I do believe that it is always important to think like an anthropologist. The anthropological adage certainly applies to any analyst of the financial markets.

Be Critical

In the movie “12 Angry Men” a dissenting juror in a murder trial slowly manages to convince the others that the case
is not as obviously clear as it seemed in court. He stands up against the other 11 jurors despite their firm conviction. If you have not seen this movie I implore you to watch it. Anyway, foster an attitude of uncertainty and belief. It is crucial to be suspicious of what’s going on and why. Believe it or not but many people warp or misconstrue information to advance their own agenda.

Be Analytical

What questions should you ask and how you should you ask them? The answer is in the data but you need to know how to interpret that information successfully.

Be Self-Reflexive

This in my opinion is one of the hardest things to do. You have to be able to contain an accurate image or representation of yourself. Realize your flaws, shortcomings, and strengths. Address your biases and look elsewhere to avoid making an uninformed, prejudice decision. As Siddhartha once said, “We are what we think. All that we are arises with our thoughts. With our thoughts, we make the world.”

 

A Principle for the Octogenarian Investor

March 25, 2013 by Bob Natiello

“What do those initials stand for?”

My Uncle Bob posed this question while pointing at the hard cover of my first-year Latin textbook. I leaned forward for a closer look at the image of a helmeted Roman centurion astride a white horse. Uncle Bob’s insistent forefinger tapped the four letters, SPQR, emblazoned on a fringed coverlet draped across the horse’s flank. I jumped at the chance to display my teenage knowledge of the classics. “Senatus Populusque Romanus,” I replied. “The Senate and the Roman People.”

“They mean something entirely different to me,” he said, drawing back his finger. “Short Profit, Quick Return.”

Raised in Manhattan before World War I, my mother’s older brother had risen from a teenage Wall Street runner to an experienced stock trader. While today’s technology has made equity trading instant and impersonal, then he spent each day moving in and out of the New York Stock Exchange’s 17 trading posts negotiating stock transactions at prices favorable to his customers. Each trade netted his firm two dollars. Short profit? Quick return? You bet.

Today, as an octogenarian investor, I’m often surprised at how closely I follow Uncle Bob’s words. Although there are an endless number of variables that bear on my investment decisions, I concentrate on the one that has grown more important to me with each passing year: Life expectancy. Though I’m a lap swimmer and a weight lifter, mine is growing short. Why cling to a rising stock in the hope of bigger gains over the long run? When I accumulate profits—even small ones—I call on Uncle Bob’s SPQR interpretation and book my gains immediately. However, Uncle Bob didn’t have an investment style box to guide him. In the current financial world, the investment style box has become an indispensable evaluative tool. I’m certain he would have approved of the one below.

I consistently follow the advice expressed in the top-left box. And if my shares continue to rise after I’ve sold them, I harbor no remorse. Instead, I hark back to times when I’ve held fast to a stock, confident of mounting profits. While waiting, markets have reversed and profits have vaporized. Those defeats have not made me risk averse, but they have made me loss averse.

True, the harvesting of early profits leaves me exposed to the short-term capital gains tax. But I prefer to pay a little more in taxes than to see a profit turn into a loss. Why? Because I may not have the time to recoup that loss.

Over the decades, Uncle Bob’s commercialization of SPQR has helped me keep my risk appetite under control. In recent years, I’ve often called upon another Latin phrase to keep myself in check. Though the poet Horace composed it more than 2,000 years ago, it’s quite popular today: Carpe Diem, Seize the Day. Unfortunately, T-shirts and bumper stickers don’t provide enough space for Horace’s complete thought. It’s “Carpe diem quam minimum credula postero.” Seize the day and trust little in tomorrow. Not a bad principle when you’re at the age where your tomorrows are numbered.