The Life-Simplifying Beauty of Never-Need-to-Sell Investments
Thursday, June 17, 2010 at 8amBy John Friedman
Most everyone wants less complexity in their lives.
Modern life, the thinking goes, is crazy-hectic, and there is never enough time to do things, so anything that adds to the crazy-hectic that isn’t also great fun or otherwise rewarding must be jettisoned, and jettisoned as soon as possible.
As a result, The Simplicity Industry is out in full force.
* * *
Simplicity is not one of the hallmark’s of most people’s s financial life. There are bills to pay, money to earn, choices to make, etc. And then there are taxes, one of the most complex of all areas of human endeavoring. And investing. And insurance. And estate planning. Etc.
Yearning for simplicity, though, many people force, in square-peg/round-hole fashion, simplicity onto their financial lives by . . . simply ignoring it. In the moment that does, in fact, effect some level of simplification, but over time it also tends to complicate, because a financial life, left to fend for itself, often entropies itself all the way out to ill financial health, the primary symptom of which is credit card debt.
So a person’s financial life needs tending — not a lot, but some.
The question, then, becomes, How can I involve myself in an arena full of complexity and not in turn get complexified?
* * *
When it comes to the simplicity/complexity spectrum, investing is a great area to look at because investing is susceptible to becoming very complicated while it can also be designed to be quite simple.
Ironically, having a money manager often does not simplify things, what with the MM calling up and asking you to make decisions about which you know nothing, and what with you always wondering if the MM is doing a good job, and what with you always knowing that the MM is getting paid, via auto-ding, regardless of whether he or she does well for you, and regardless of whether he or she has even lifted a finger for you to earn it, etc.
So imagine that your MM calls you up and says something along the lines of, I want to sell your HP stock because I think it’s had a good long run and is now over-bought, plus earnings are coming out next week and I think The Street’s estimates are too high and the medium-term outlook too sanguine, while IBM looks good as a replacement because I think it’s overdue for a run and because the Chinese are doing a lot of business with Armonk. Blah blah blah.
So what’ch’ya gonna say?
Most people say something along the lines of, Well, if you think so, go ahead, but their internal dialogue is more along the lines of, How in the world am I supposed to know if this is a good idea or not?
So, yes, having a money manager in your life means never having to directly manage your money, but, yes again, it also means having to manage a complex relationship involving a whole lot of your money.
And that extra layer can really be complicating.
* * *
But wouldn’t it be even more complicated to manage your own money?
Wall Street would have you think so. Its buttered bread is riding on its ability to make sure that you always think that way.
But beginning as a trickle 20 years ago and gaining momentum ever since — with the rise of Schwab (still going strong, but often scoundrelly towards its customers), E*Trade (which, ten years ago and quite unfortunately, became more East Coast bank than West Coast tech company, and then proceeded to 95% kill itself by writing bad mortgages) and TD Ameritrade (with its Toronto Dominion Bank backing, now having amply proved itself to be a very capable and very real survivor), and all the other companies that have helped to make self-directed investing inexpensive, easy and mainstream — that emperor has been decisively shown to be less and less clothed until, today, it is clear that the emperor is butt-naked.
Today, then, it’s possible for you to be your own money manager and to be good at it, and for the whole thing to be incredibly simple and empowering — and not a time-sponge. Yay.
* * *
Now the full set of details about hows to be your own MM are beyond the scope of this piece. For this piece we’ll just take a look at one small part of the self-directed investing pie.
* * *
The saying breaking up is hard to do is true for investing as well as for loving, because, while buying an investment is relatively easy — fun, even — the hard part of investing is figuring out when to sell.
If an investment you bought goes up, what should you do? Should you sell it? That would bring you some new money. But maybe if you wait it could go up more and then you could get even more new money, right? So what to do?
And if it goes down, should you sell before it goes down more? Or should you hold on because it’s just bound to come back?
Of such things is torn-out-hair made.
So selling is the hard part.
But what if you buy something that is designed to never be sold?
Hmmm . . . .
* * *
If you serve as your own MM, you still have to make buy and sell decisions, but they needn’t be like the ones described above. That’s because, instead of buying stock in HP and IBM and the like, or Treasury bonds and muni bonds and the like, you can buy index investments. Have you ever heard of index funds? Those are the main index investments that people buy. And maybe you’ve even heard of exchange traded funds? Nearly all of those are also index investments. Here, though, we’ll just be looking at the overall category of index investments, generally.
Index investments represent broad cross sections of chunks of the investing world out there. So you could, for instance, buy an index investment that represents pro-rata ownership of every stock sold in America — every last one. Another index investment might represent pro-rata ownership of every stock sold outside of America. Another could represent pro-rata ownership of every bond in America. Etc.
And the beauty of owning investments like these is that you need never sell them — which means that you need never deal with the hard part of investing — and that’s a major simplification of your financial life right there.
Sure, you would sell them as you needed to raise cash in retirement to float your boat, and you would still need to rebalance (both topics for another day), but those sale decisions are based on your needs and are internal to you, rather than being based on thoughts about whether a given, highly idiosyncratic investment is no longer a good investment — thoughts concerning something in the external world out there, over which you have no control and as to which you have no especially great information upon which to base your decision.
So, in general, index investments can be core, long-term-hold investments that you needn’t think much about, if at all, while you own them. And then when the time comes for you to start switching them into something else (cash, for instance), your sell decision will be much easier than if you were trying to guess when to sell HP or IBM or a muni bond.
* * *
This, then, is the starting point for what I call Rip Van Winkled money — money that you put to sleep for twenty or more years, during which time you, just as Rip did to avoid an unhappy home life, can go to sleep and never pay much mind to what is going on in the meantime with your RVW’ed money-stored.
And, to paraphrase Herbert Morrison announcing the Hindenburg going down,
* * *
‘Til tomorrow, then, here’s to your financial health, and may it continuously improve.
.
Of Hockey Players and Home Buyers: The Luck of the (Birth) Draw
Wednesday, June 16, 2010 at 10amBy John Friedman
Not long ago (15 years, say) you could buy a decent house in San Francisco for $40k down and $2.5k a month.
For many, that was doable, especially since it cost $2.5k to rent that same house. And, as icing on the cake, you got the appreciation ride — an upward rise that seemed all but assured because it had been a fairly steady up of 7 or 8% per year over the course of several decades, and which therefore generated an annual wealthflow well into the five figures. Over time, it seemed, the escalator went one way only, and that way was up.
(Yes, for all you tax wonks out there, you also got an income tax break on the mortgage interest, which brought your monthly payment down, in practical terms, to something in the neighborhood of $2k or less, but I leave that out here because that tax benefit would be just about used up by all the other constant money-outs arising from home ownership, such as insurance, maintenance, property taxes and the like.)
So $40k down and $2.5k a month bought you a home. Middle class people could, and did, accomplish this.
15 years ago, then, if you were here for the long or semi-long haul, and if (a) you had, say, $100k of stored-up wealth, $50k of which was in cash that you could use for a home purchase, and if (b) you could afford housing costs of, say, $3k a month, it was pretty much a no-brainer to buy.
* * *
Today, not so much.
Knowing the First Thing About NPVs
Tuesday, June 15, 2010 at 9amBy John Friedman
Those of you who have worked with me or have read my Services Overview FAQ know that I am all about teaching people to fish, rather than giving them a fish, as in the saying, Give me a fish, and my hunger will be satisfied for a day, but teach me how to fish and I will be satisfied for all time.
The idea here is that plying clients with data and facts is not nearly as nourishing and financial-health-improving as bringing them to some learnings/tools/concepts/understandings/etc.’s which can help them to make better and better decisions.
So I am all about teaching people how to improve their overall financial health.
* * *
Earlier today I read a financial blog presumably designed to teach a lay audience about Net Present Values, or NPVs. It struck me as somewhat useful, but backwards, in that it started off with a lot of nuts ‘n bolts discussion about how to build an NPV spreadsheet for comparing mortgages (a tool similar to one that I have built and used for the same purpose . . . though I think mine is a bit cooler and more flexible), and then, at the end, talked about the concept.
That’s backwards, no? ?on, sdrawkcab s’tahT
It also struck me as odd that a mortgage broker in the comments section would ask the author to send the mortgage broker a copy of the author’s NPV tool, because the only way to compare mortgages is through NPVs, so a mortgage broker asking for an NPV tool is like a carpenter asking for a tape measure.
Shocking. But not surprising.
* * *
Net present values are wonderful tools. They are also rather wonky.
Excel knows all about them (NPV is the Excel function, with FV and PV being close cousins and PMT being a first cousin once removed), as does the HP12C calculator, business calculator extraordinaire, user of Reverse Polish Notation (yes, it really is called that), and most-evergreen-of-all handheld electronic devices (I got mine in 1984, and other than a change in the type of batteries the units take, they are unchanged since then).
But as set out below, the NPV world is also wonderfully susceptible to Friedman’s Rule of The First Thing, which states that, To improve your financial health in a given area, you need to know, at least, The First Thing about that area, and the happy corollary of which states that, The First Thing is just about always easy to learn.
So you typically needn’t know everything about the area — just The First Thing, and you can easily learn The First Thing.
You then need to sprinkle in a dash of the help of your friendly financial health advisor, and/or two dollops of further work on your own, stir, and serve when ready.
* * *
Here’s The First Thing to know about NPV: it scales future-dollars into today-dollars.
It’s that simple.
How valuable is a check for $10k that you receive a year from now? How about if you receive it ten years from now? And which would you prefer: receiving $10k a year from now or $11k two years from now?
Likewise, if you have to pay someone $10k a year from now, how much should you have in the bank, right now, right here, today, so that, when the time comes to make the payment, you can simply get the entire payment out of the bank?
And how about if you had to make the payment ten years from now?
NPV answers those questions. It does so by converting all those flows of future-dollars — dollars that, after all, can seem quite different from one another, e.g., how does a two-years-from-now dollar compare to a one-year-from-now dollar, and how do both of those compare to a 99-years-from-now dollar? — into nice, smooth, consistent, easily-compared today-dollars.
In short, NPVs convert all future dollars, regardless of how far out into the future they might be, into an every-today-dollar-is-like-every-other-today-dollar dollars.
* * *
Now, if you’re thinking that answering all these questions sounds like it might involve interest rates, you’d be right. Because the money you have sitting in the bank to pay the $10k one year or ten years from now will be earning interest between now and then.
Here, then, is NPVs primary, but handle-able, foible: to use NPVs, we have to choose an interest rate to use. Some call that interest rate it the time value of money. Others call it the discount rate (not to be confused with the Discount Rate the Federal Reserve sets). And businesses often call it their hurdle rate, as in, If this project doesn’t NPV out, then it can’t beat our cost-of-funds hurdle, which means that it costs us more to get it up and running than it promises to pay back to us over time, so we shouldn’t do it (for the solar geeks out there, yes, if this sounds like an analysis of whether a solar panel installation pencils out as having a quick enough payback period, that’s because it is just like that).
So call if what you will — in here we’ll call it the assumed interest rate.
I often use 7%.
It used to be that we could assume that money, beautifully stored in a beautiful asset grid, capable of smartly shedding the twin headwinds of taxes and inflation, could grow at, say, 10%. And hopefully one day it will seem that way again. But since 2000 it hasn’t, so 7% seems like a good figure to use.
Besides, when you run the numbers, you’ll often (but not always) find that the choice of interest rate is not that crucial, because, so long as you use the same interest rate to scale all future-dollars back to the present in today-dollars, you’re being consistent and the resulting NPV calculations will be meaningful.
Then, on a well-designed NPV tool, you can quickly change the assumed interest rate back and forth to both very high (25%) and very low (1%) figures, to see how sensitive your particular situation is to the interest rate assumption.
It is usually quite a-intuitive for people, at least at first, because higher interest rates generate lower NPVs and vice versa. But with practice, it becomes easier to intuit.
* * *
So let’s use 7%, compounded annually, as our assumed interest rate and see what the answer is to one of the questions up above. Using Excel’s PV function, it looks like you would need to put $9,345.79 in the bank right now to have $10k a year from now with which to make the $10k required payment. You can check this by seeing that that amount, growing at 7% for a year, will be worth $10k a year from now (the math is this: $9,345.79 times 1.07 = $10k).
An dhow about if the scenario is that you need to pay $10k a year from now, but that you also have to pay $10k out two years from now? What then?
This is where NPVs come in handy because, while funding the $10k payment a year from now is eyeballable (as in, let’s see now . . . if I need $10k a year from now, I need something between $9k and $10k in the bank right now to fund that future obligation), this new scenario is complicated enough that it t’ain’t eyeballable.
Again using Excel, we know that, to fund that second payment you need to have, in the bank, right now, $8,734.39 — a smaller number than you needed to fund the first payment. That’s because, over two years’ time, the money destined for that second payment has more time to grow so, even though it is funding a similar $10k payment, that extra year of interest makes a difference, so you can start with a smaller amount in the bank.
And for those of you who like math, the checking-the-math formula is now a two-stepper: $8,734.39 times 1.07 equals $9,345.79, and $9,345.79 times 1.07 equals $10k (with those two steps also being known as the single step of $8,734.79 times 1.07 to the second power, which is 7% annual interest, compounded annually, for two years).
All together, then, to fund both $10k payments, you would need to have $18,080.18 in the bank.
And if you had this $10k annual obligation for a full ten years, the numbers would cascade downward, like so:
Funding Needed for Payment Due 1 Year Out: $9,345.79
Funding Needed for Payment Due 2 Years Out: $8,734.39
Funding Needed for Payment Due 3 Years Out: $8,162.98
Funding Needed for Payment Due 4 Years Out: $7,628.95
Funding Needed for Payment Due 5 Years Out: $7,129.86
Funding Needed for Payment Due 6 Years Out: $6,663.42
Funding Needed for Payment Due 7 Years Out: $6,227.50
Funding Needed for Payment Due 8 Years Out: $5,820.09
Funding Needed for Payment Due 9 Years Out:: $5,439.34
Funding Needed for Payment Due 10 Years Out: $5,083.49
So do you see that? Do you see how it worked? NPV scaled all of those payments back to today-dollars.
And all that adds up to $74,986.74, which is the number of today-dollars you need to have in the bank, right here, right now, today,to be able to pay $10k future-dollars on each yearly anniversary date for ten years.
And, yup, for those of you getting all excited about sighting The Rule of 72 in action for the Year 10 payment set out above, you’d be right (and if we had used 7.2% as our interest rate assumption rather than 7.0%, then that final figure would have been $4,989.44 — a tad closer than $5,083.49).
And, yup again, if this sounds a bit like planes configured to land in SFO one after the other, you’d be right about that too.
* * *
So what’s the big deal? What’s the big deal about NPVs?
To keep things short, I’ll just give you two piques:
NPVs allow you to compare different mortgages. Should you go for a mortgage that has a 5% interest rate, but for which you have to pay a point? Or should you take a mortgage at 5.25% and half a point? Or how about 5.5% and no points? NPV let’s you compare all three, at a standardized, today-dollar scale.
And the answer is clear: you should pay the point and get the mortgage at 5% (which is usually the answers these days, as banks, more than in the past, want to get some cash upfront when they write mortgages, and price their alternative mortgages accordingly).
Here’s how that works: if (a) you have a ten-year timeframe (i.e., fictitiously, you know that you will have the house and the mortgage for a full ten years, and that on the first day of the 11th year you’ll sell), and if (b) you use 7% as the time value of money, and if (c) you assume a $500k mortgage fully amortizing over 30 years (that’s a good ol‘ fashioned mortgage, without the bells and whistles that caused so much trouble two years ago . . .), then (d) the answer is that you should pay the point, as shown in this summary output from my Mortgage Comparison Tool:
|
I.D. |
Description |
Net Present Value for First Ten Years of Cash Flows |
|
Mortgage 1 |
5.5%, 30 year fully-amortizing mortgage, 0 points, 10 year timeframe |
243,752 |
|
Mortgage 2 |
Same, but 5.25% and half a point |
236,836 |
|
Mortgage 3 |
Same, but 5% and 1 point |
229,990 |
In other words, even if you have to pay $5k up front to get the mortgage (“1 point” means you pay 1% of the loan amount to get the loan), you make up for it with a lower monthly payment over 120 months (the monthly payments are $2,838.92 for the no-point-mortgage vs. $2,684.11 for the one-point mortgage).
Here, if all the assumptions prove out, as a result of paying the point to buy down the interest rate, you’ll be roughly $14k to the good at the end of 10 years (the difference between the $244k ten-year NPV of the no-point mortgage and the $230k ten-year NPV of the one-point mortgage)
* * *
NPVs also let you see how much having a spend-it-all/save nothing year costs you if you do it, say, one year from now vs. what having a spend-it-all/save nothing year costs you if you do it, say, ten years from now.
For instance, let’s say that your savings rate is $10k per year (so if you’re lucky enough to be part of a 401k plan, you’re not maxing out your 401k plan annual contribution). NPVs tell us that, if you blow that off a year from now and save nada, then it’s like kissing goodbye to . . . $9,345.79 of today-dollars. That’s the first number in the ten-year table up above.
And if, rather than blowing it off a year from now you blow it off ten years from now, then it’s like kissing goodbye to $5,083.49 (the last number on the table), a difference of more than $4k. So failing to save $10k a year from now costs $4k more, in today-dollars, than failing to save $10k ten years from now, in today-dollars.
And that, dear reader, is why saving today is a much bigger deal than saving in the future.
When you think about it, this makes sense because, if you are retiring in, say, 20 years, the $10k you save next year will grow to more than $36k at that time ($10,000 times 1.07 to the 19th power), while the money you save ten years from now now will only grow to a bit more than $18k ($10,000 times 1.07 to the 9th power) (and, yup, there’s that good ol‘ Rule of 72 again).
* * *
So now, with knowledge of The First Thing about Net Present Values in hand, you can make better decisions about the tradeoffs between money now and money later — between paying now vs. paying (a usually larger amount) later, and between receiving now vs. receiving (a usually larger amount) later.
To do so you need only convert those future-dollars, using an interest rate assumption, back to today-dollars, allowing you to do simple comparisons of which one’s bigger? — something you were able to do in about second grade.
And to do the conversion? Excel-heads dig in. Others please ask for help. I, for example, am here.
And never hire a mortgage broker who doesn’t know his or her NPVs.
* * *
To wickedly mix metaphors, then, a fish in the hand today can be worth more than two fish in the hand sometime in the future, but, then again, sometimes it is not. To know, you have to convert all those future-fish into today-fish.
And that is true regardless of whether you caught the fish after learning how to fish, or it was simply given to you by a well-meaning fish-giver.
‘Til tomorrow, then, here’s to your financial health and may it continuously improve.
.
The Rules of Phishing Avoidance
Monday, June 14, 2010 at 10amBy John Friedman
Today’s post is a simple one about security.
We start with the premise that there are scoundrels out there who want to do you harm. And, no, this is not The Four M’s (Marilyn Manson and Michael Moore) arguing that the corporatocracy ruling the land wants all of us to live in a constant state of fear because it’s good for business — there really are scoundrels out there (perhaps riding the wave The Four M’s describe . . . ).
To keep things narrow, today we focus on a single slice of scoundrel-hood out there — the phisher.
* * *
Phishers phish; they go phishing.
Phishing is like fishing, but rather than being the act of seeking fish, phishing is the act of seeking information — personal, confidential information, like passwords or, worse yet, passwords to places like banks and brokerages, places in which real money is housed, real money which, using your password, can be removed to gosh only knows where, i.e., stolen.
A friend recently received an email, purportedly from Craigslist, which read as follows [warning: do not click on the link in this block indent]:
Important Craigslist Information
CRAIGSLIST TERMS OF USE
We reserve the right, at our sole discretion, to change, modify or otherwise alter your account at any time. Therefore your account will be blocked.
To avoid deletion of your Craigslist account please Sign In:
Click here to confirm your Craigslist account. <http://mail.summit-construction.com/north.craigslist.org/index.htm>
Putting aside the obvious grammatical, non-sequitur’ing nature of the request (hallmarks of most, but not all phishing email), what do you see?
Is this a request from Craigslist? And will the link take you to Craigslist to “confirm your account” (whatever that means)?
Gosh no.
This is a phishing email put together by a scoundrel and sent to perhaps hundreds of thousands of people, knowing that at least, say, 1% will have a Craigslist account, and that perhaps, say, 1% of those folks will click on the link and follow through with providing all “account confirmation” information requested.
Why, if the email went out to 1 million people, that’d be 100 people, coming to the scoundrel and leaving behind, on the scoundrel’s website, their passwords and other personal information. All in a day’s work, that, don’t’ch’ya know, this hurting people thang . . .
* * *
Now it so happens that this friend forwarded the email to me via her Blackberry, and I suspect that the Blackberry changed the formatting of the link (Blackberries tend to strip out a lot of formatting of forwarded emails). And, in doing so, it showed the actual location of the website you would go to if you clicked the link, whereas most well-done phishing emails cloak the actual destination underneath language which is much more inviting, e.g., here, the link might say “Craigslist.”
And do you see that, even uncloaked, as it appears in the block indent above, the link does indeed have the word “Craigslist” in the address? That’s so that anyone who uncloaks the link (which, as described below, is easy to do) sees something which is inviting, rather than offputting.
But do you see what comes before the “.com” in the address? It says “summit-construction” and that is the destination of the link: the destination is some page maintained on the Internet by someone who happens to own something called “summit-construction.com” and who is likely a scoundrel (or at least the victim of a scoundrel) — and who is definitely not Craigslist.
So this is a key to understanding Internet addresses: for our purposes here, the only thing that really matters in an Internet address is the language that comes before the left-most “.com” (or “.net” or “.gov” or “.biz,” etc.). For techno-wonks, this is the “domain name.”
And it just so happens that the way addresses work on the Internet is that all the other words in the destination — everything other than the domain name — can be anything whatsoever that the people setting up the website want them to be. So the word “mail” at the beginning of the destination address, together with everything after the left-most “.com” in the destination address, can be easily changed by the person controlling the destination to be anything — including “craiglist.org.”
In fact, if they wanted to phish using my business identity, they could just as easily have set up a destination at mail.summit-construction.com/JFRQ_Consulting.com
Neither Craigslist, nor I, could have much to say about it.
And, yup, this does indeed mean that every www. or dub-dub-dub-dot or triple-w-dot you ever dealt with was superfluous.
* * *
Now I haven’t clicked on the link in the block-indented phishing email above to find out what lies at the other end (maybe-bad conjugation of the word “lay” and resulting pun intended) — and I strongly advise you to not go there either — but you can pretty much guess that, when you arrive at that page, the page is going to ask you to input a password, your name, etc., all so that the fishing scoundrels running the site can commandeer your identity insofar as you have an identity with the Craigslist website.
And then once the phishing scoundrels have that info, gosh only knows what they will do with it.
Given that the main nefariousness with which CL has been alleged to be a part is the sex trade, though, we can guess that one possibility is that your own good name would be put to use to further the sex trade.
Sounds bad, eh?
* * *
Now we come to the never-ever rules.
The 1st rule of phishing avoidance is to never, Ever, NEVER, EVER! click on a link in an email that is from someone — a human being — whom you do not know personally and well, and whom you do not know for a fact to be trustworthy.
The 2nd rule of phishing avoidance is to never, Ever, NEVER, EVER! click on a link in an email from a non-person. Any business that wants to contact you can do so by calling you up, and this is especially true when it comes to financial companies. They will never, Ever, NEVER, EVER! send an email to you requesting that you log onto their site. If there is a problem (which there never is), they will call you (which they seek to never do, because that costs money).
The 3rd rule of phishing avoidance is to never, Ever, NEVER, EVER! click on a link in an email without first seeing where that link will take you — without de-cloaking it, rather like a Romulun Bird of Prey for all Star Trek fans out there.
This, too, is important: the language you see on the surface of a link has nothing to do with the destination address underneath — the guts of the link that actually tell your computer where to take you.
For instance, you know that link in the block indent, up above? The one that I strenuously told you to not click on because it was dangerous? Well, I changed it (for many reasons including the reason that saying, Don’t touch this, it’s hot, makes a human being consider touching it . . . ), so that, now, as changed by me, if you click on the link you will be transported to Wikipedia’s entry on phishing.
* * *
So who’s to know? Who’s to know what the cloaked destination is?
You are, that’s who.
Email readers just about always have a way for you to see the underlying destination address embedded within a link without you having to actually click on the link.
For instance, most Windows-based email readers allow you to scroll over the link (i.e., put the mouse pointer on top of the link) to see what’s what. In Microsoft Outlook, when you scroll over a link a little bubble-up will bubble-up showing you the address to which the link will take you. Thunderbird works similarly, but rather than doing the bubble up, when you scroll over the link T-Bird puts the destination address into the status bar (the lower left hand corner of the window).
Those are the two email readers I have on my machine; if you use some other type of email reader, why then you’ll either need to figure it out on your own, or, more easily, you can ask the nearest young person to show you. Just ask them, Oh wise (insofar as computers go) one, without clicking on a link in an email, how can I tell on my computer where the link will take me?
* * *
Of all the ideas above, the one that is most important to your continued financial health is to never, Ever, NEVER, EVER! click on a link that looks like it’s from a bank or a brokerage or any other financial company.
It be a scoundrel, cloaked in a facade of authenticity, and typically, but not always, clothed in bad grammar, non-sequiturs and other things that hopefully make you scrunch up your nose and say, wuh?
‘Til tomorrow, then, here’s to your financial health, and may it continuously improve . . .
Are We There Yet? — The Un-Fun Fatigue Factor
Friday, June 11, 2010 at 8amBy John Friedman
Last fall and earlier this year I saw a lot of clients just loose steam on this whole recession thing.
Since 2008 they had been just grinning-and-bearing it. It was un-fun to the n’th degree, but they knew the whole thing would be over sooner or later, and probably sooner rather than later.
But then when the clock struck 2010 (or earlier for some folks), they had just had it — they just didn’t have any more just-keep-your-chin-up/stiff-upper lip remaining in them. They had fallen pray to The Un-Fun Fatigue Factor.
TUFFF.
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I saw this in almost every business I advise. For some businesses, in fact, the coming of 2010 was tantamount to flicking a switch from on to off.
Now each business is unique, so it is hard to say exactly what this was about, but I suspect it had to do with revenue momentum. RM is the answer to the question, If I stop getting new business, how long does it take until things really start falling apart?
For retail businesses, the answer is pretty much right away. That’s one reason why retail sales figures are seen as important indications of economic activity, and that’s why today’s rather dismal retail sales figures are scary (especially when combined with last week’s totally dismal NFP figures)
Retail businesses are small-ticket businesses, in the sense that most retailers have oodles of customers, each of whom spends a small amount at the retailer. Each of those customers can, pretty much at the drop of a hat, stop spending, and that is why retail businesses have relatively little RM.
On the other hand, big-ticket businesses — those with a relatively small number of customers/clients — have a lot of RM. Here, in a happy bit of symmetry, it is often the case that, just as the customer is an important part of the business’s revenue stream, the business is an important part of the customer’s way of existing.
So I saw a lot of small-ticket, low-revenue-momentum businesses up against the un-fun fatigue wall in the fall of 2009, and a lot of big-ticket, high-revenue-momentum businesses sucking up to it in early 2010.
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People, too, are dealing with TUFFF. They are the economic actors on the other side of the retail sales number out today. These days people are TUFFFed enough that they cut back their spending quite a bit from a month ago (though it is still 7% higher than a year ago).
I am a big believer in cutting back. My common refrain of a year ago — after the stock market had fallen by 60%, after we had perched on the precipice of The Great Depression II, after we had watched so many institutions fail, and so many fail us — was, If not now, when? If you don’t cut back on your spending now, then when on earth would you?
The problem with doing so, though, is a collective one: if we all stop spending, then the aggregate demand increase I have been going on about in here will not happen. This is called The Paradox of Thrift (even wonkier article, from Krugman, here). That is, less spending means less economic activity, less economic activity equals less aggregate demand, and, even though more savings (which is the output of less spending) is usually good for the economy, in this situation it is not.
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This, however, is where I draw the line on The Big Us. Yes, we are all in this together, but, no, you should not spend when doing so is bad for your overall financial health, even if doing so would be good for the economy as a whole. Umm . . . don’t quote me on this, but in this context, altruism is for others.
And, assuming that spending is fun (and, other than the mere-sustenance part of it, that’s the whole point of spending, isn’t it? If it weren’t fun, we wouldn’t do it — shopaholics and people with spending problems excepted — would we?), that means more TUFFF for us.
MTUFFFFU.
So, please, just a bit more patience, if you will. It’s out of our hands. All we can do is grin and bear it. And hope.
And remember: there are lots of ways to have fun.
Lots of hugs every day comes to mind.
‘Til Monday, then, here’s to your overall financial health, and may it continuously improve.
718 words. Yay