college education - is it for everybody?

So I just read an article that I really liked in the Nation called "Should All Kids Go To College?".

I've been mulling over this idea that everybody needs to go to college for some time now and I was not seeing the sustainability. I have mentioned it in my blog in the past. You may remember my complaints about recent grads taking up receptionist jobs. Well you can check out my crazy outburst of emotion under the comments page =) I won't repeat it here!

Giving Financial Advice - how do you make people listen?

So right now I'm all about encouraging people to save. At work I have this new advocacy project through my Equal Voices Fellowship in which I will be focusing on the goal of increasing the amount of money Marin county residents save.

Erupting Mind

Now as a side note, at our office we are always preaching about the importance of savings! There is this phenomenon called the cascade effect. It pretty much suggests that when you don't have a little bit of savings in the bank (and are living paycheck to paycheck) your life can easily take a downfall.  Say you have an unexpected car mechanic bill to pay. You don't have the savings for it, so you take it out on credit. Then you realize you can't pay your credit card. Then all of a sudden you can't cover basic expenses...and before you know it you're being evicted. - Cascade Effect - starts all because you couldn't cover that initial expense!

I wish I could say this argument was convincing enough to make people open savings accounts...but the 1st reaction you get is ... yea saving money is hard.... I need it!

So anyways, back to my project. My first action item is to start a Summer Savings Challenge. I have hashed out the details with my boss and made a flyer. Now all I have to do is advertise it!

What is the Summer Savings Challenge you may ask? Well it is a raffle designed to encourage people to save.  You get one raffle ticket/entry every time you make a deposit of a minimum of $5 (limit: one entry per day).

This goes on throughout the summer until August 31st. On September 6th we will hold the raffle! You can win up to $100!! There are actually 3 prizes to win: $25, $50, and $100.

What we are trying to do here is build people's "savings muscle" (so nicely worded by my colleague Ramona).  It is not the amount you save, but the commitment to save! Even if you can only commit to $1 now; you're still building your savings! It's just like when you start building real muscle. You may start with 1 pound, but after time your arm will get stronger and stronger and you may be able to increase the weight you lift.

women's handle on money ...

So I've signed up to this new newsletter called the Daily Worth and it is quite interesting/awesome!

Women coming together to take control of their finances and become smarter financial planners and investors = awesome!

Check out their website:

Their most recent newsletter was quite "eye raising". Planning for divorce. Talk about things you don't want to talk about! But their tips were really interesting and if I were married I would look into this. Even better, check credit scores BEFORE you get married!!! Get it all on the table before hand!
and when it comes to divorce, make sure you know all the finances beforehand - don't get screwed!

Considerations in Deciding When to Take Social Security

Recently I responded to a post from a blogger I respect, The Oblivious Investor, about decision making regarding whether to take early Social Security benefits for retirement or not.  It contains enough food for thought regarding this decision that my comment is presented below in its entirety.

There are obviously too many variables to consider regarding taking social security to be able to give one-size-fits-all guidelines, but I want to point out one non-financial consideration: with the break-even point of taking benefits at 62 vs 70 generally falling somewhere around age 80, for people who have ample resources they need to consider the USEFULNESS of the income between ages 62 and 80 versus ages 80 and say 98.

Each person has to make their own decision, but my experience is that generally people are as healthy and active as they can in those earlier years of retirement, and then at some point they’ve “been there, done that, got the t-shirt” and the extra income is less useful.

I googled ‘social security break even’ to find a quick verification of the break even point being somewhere around age 80, and found a good article from BusinessWeek . Coincidentally a colleague of mine in the fee-only Alliance of Cambridge Advisors, Bert Whitehead, was quoted in the article and he made a good point that if one invests the social security income they receive between ages 62 and 70 then the breakeven point gets pushed out to somewhere into age 92+.

I didn’t realize he was in that article, but at the risk of being biased in that I know he’s a great financial planner I think it’s a worthwhile read.

Actual Rules from Wall Street

Goldman Sach's in 2001 published guidelines that employees must follow for written communications (eloquently titled United States Policies for the Preparation, Supervision, Distribution and Retention of Written And Electronic Communications, although I'm sure that people in-the-know refer to it as 'USPPSDRWAEC').  Here is a direct quote from USPPSDRWAEC:

"Prior to recommending that a customer purchase, sell or exchange any security, salespeople must have reasonable grounds for believing that the recommendation is suitable."

So not only do investment recommendations need not be in clients best interest - merely needing to be suitable - apparently it is not even required that the salespeople (How come these people are never referred to as 'salespeople' on their business cards or in those TV commercials?  When their company itself calls them salespeople, why are they allowed to masquerade as 'financial advisors', 'financial consultants' and 'wealth managers'?  But I digress...) know for certain that their recommendation is suitable.  They just need to have 'reasonable grounds' - any defensible theory that in some circumstance the investment would be reasonable - to believe so.

This must be very reassuring to their clients

Abelson, Max and Winter, Caroline. “The Goldman Rules: Excerpts of the bank's real, actual communication policies.” BusinessWeek, April 25 - May 1, 2011

Frustrations with College funding

Yesterday I attended a presentation by EARN called "Education Debt: the Next Bubble" and realized that we are still not getting it. Initially I was excited to go to this talk because I felt that education debt could very well be the second "housing" crisis. People taking a risk and going into huge debt to invest in their education, not knowing if the returns will actually pay off in the end. Just like with the housing crisis, people believe in being successful after their investment and being able to gain from their investment.  As we saw in the housing crisis, this is not always the case. Investing in something so widely believed as a "good" investment and worth the risk is still a RISK and therefore not guaranteed! and the statistics are staggering!

In 2008, students and their debt equaled over $550000000 for private, for-profit schools.  The average debt a student in California has is 17,000 and in Massachusetts is 24,000, both lower than a student with debt from a private school (such as USC 30,000). Have you seen many entry level jobs paying anywhere near enough to pay for your living and pay this debt off? There may be some, but there are not enough! and what about all those other jobs that don't need a college degree and pay about the same as a entry level job (at which degrees are pretty much a standard) - not because of the actual work performed, just because everyone else applying has a degree as well. But, that is a different
argument altogether!

More to come on this subject later...

Resilience in Military and Markets

It was eight years ago today (March 19 in the US, March 20 in Baghdad) that the bombing which initiated Operation Iraqi Freedom started.  When I recently read that I thought of the sacrifices and heroism of our men and women overseas and I'm grateful to live in the greatest country in the world.  Let's not think of our servicemen only on Veterans Day and Memorial Day - thank a soldier today.

In thinking of the significance of the war and how much time has passed since it started, I also thought of how significant the changes in our financial world have been over that same time.  When the war started we were coming out of the worst bear market since the early 70s and one that rivaled the Great Depression for the depth of market losses.  Since that time think about all the terrible things that have happened in the financial world:

• the war in Iraq has continued to drag on
• oil spiked up to $140 per barrel
• housing prices have tanked, dropping as much as 50% in some markets
• Bear Stearns was bailed out by the government
• Lehman Brothers wasn't bailed out and went bankrupt
• AIG, the largest insurance company in the world, had to be bailed out
• Fannie Mae and Freddie Mac had to be taken over by the government to avoid bankruptcy
• unemployment reached double digits for the first time in 30 years

It has truly been a difficult time to be an investor during the past decade.  But a closer look at market performance shows the resiliency of capitalism.  The S&P 500 back in March 2003 was just below 900, closing on 3/20/2003 at 876.  After all of those terrible events in the interim, today the SP is just under 1300 - an increase of around 5% annualized.  And that's on price-only basis, dividends which historically account for about 1/3 of market returns are not included in the index levels.

And that's also on an undiversified US large cap only basis; over the past eight years globally diversified index fund portfolios have returned in the 7-12% range (annualized including dividends) depending on the mix of stocks and bonds being considered.

Capitalism does work, and to participate in the gains inherent in capitalism one need not pick the best stocks, or hottest funds, or anticipate interest rate changes, or time the market to get out when it goes down and in before it goes back up, or pay attention to any of the myriad 'new normal' or 'this time it's different' media fallacies.

All we need to to is be invested and be patient.