As a whole, American workers are estimated to be $6.6 trillion short of what they need to retire comfortably.
I'm not exactly sure where the filmmakers are coming from. They highlight a young guy who's running for congress. I'm not sure if this is part of his campaign or not, so they may have hidden motives. But I don't doubt the facts that most Americans are woefully unprepared for retirement.
What's the solution? Work longer? Never retire?
It's certainly not count on Social Security to pay for any sort of reasonable retirement.
It's not an issue for me personally, but one I'm aware of and watching from the sidelines. What do people think is going to happen when they plan to "retire" and yet haven't saved for it? Do they think the government will handle it all? I'm frustrated that so many people don't take the issue seriously and as a result it may put our nation in a tough position.
Ok, I'm rambling now. What do you think of this issue?
I think this is true for the big business millionaires, but I think the millionaire next door types actually shy away from debt. I know I do.
3. The wealthy think about money in non-linear terms.
I'm not sure what they mean here other than "come up with a great idea that earns you a gazillion dollars." I like the thought, but not sure it's realistic for most people.
4. The wealthy see money through the eyes of logic.
Very true IMO. This is why the wealthy often say things like "spend less than you earn" and actually do it while most people say "that's common sense" and yet can't seem to pull it off.
5. The wealthy believe being rich is a right.
I don't think most wealthy people believe being rich is a right, but I do think they believe being wealthy (or at least significantly wealthier than you are now) is something attainable by almost everyone. They just need to take the right steps to get the results.
Anyway, that's my take on their views. What do you think?
Myth #1: Indexing only works in "efficient" markets
Myth #2: Who wants to be "average"?
Myth #3: You get what you pay for—Higher cost + Higher ratings = Higher returns
Myth #4: Market-cap weighting overweights the overvalued
Myth #5: Index funds underperform in bear markets
The myths I want to highlight are #2 and #3.
I've had many people say to me that they don't want to "settle" for average returns which are what they believe index investing provides. However, this is not the case. Indexing provides average gross (before expenses) returns, but once costs are deducted, indexing provides superior net returns (which are what you actually take to the bank). Here's how Vanguard puts it:
The reality is that index funds, in their attempts to deliver the average returns of all investors in a particular market, have delivered far-from-average performance.
An important reason for this is cost. Indexing has proven to be a low-cost way to implement an investment strategy, lending a significant tailwind in producing above-average returns over the long term relative to higher-cost active strategies. For example, 84% of active small-cap blend funds and 71% of active emerging-market funds underperformed low-cost index funds for the ten years through 2013.
Can some investors beat index investing? Yes. Can a very few do it again and again for decades? Yes, but only a handful. Does doing so require a good amount of skill, time, nerves of steel, and even luck? Yes. In other words, most people (even professional fund managers) can't beat indexing -- the odds are stacked against them. So why try? Instead, spend your time and effort working on growing your career -- something you can impact and which will yield much bigger dividends in the long term.
Closely tied to the net return is costs, which Vanguard addresses in myth #3. Their thoughts:
The "higher the price, the better the product" myth is another intuitive, everyday maxim. In investing, it would seem to be translated as: "We can expect to enjoy higher returns from expensive or highly rated managers."
However, the reality in investing is that this seemingly commonsense relationship is reversed—you often get what you don't pay for (that is, higher performance is frequently equated with lower cost). Perhaps even more unintuitive is that highly rated funds have actually underperformed their lower-rated peers.
They then show a couple of charts that illustrate these points of view.
I know Vanguard has a vested interest in promoting index investing so the arguments are far from biased. But that doesn't mean they aren't valid or true. The reasons above (plus others) are the reasons I have invested in index funds for over two decades now. And I don't plan on changing anytime soon.
How about you? What's your key financial investment these days?
How did they arrive at this number? Here's the basic premise:
"It's not about getting rich and making a lot of money. It's about security," he said. It's also as much about hope for the next generation as it is about the success of this one. "They want to feel that their children are going to have a better life than they do," said Hirschl.
In their book, the authors write that besides economic security, the American dream includes "finding and pursuing a rewarding career, leading a healthy and personally fulfilling life, and being able to retire in comfort."
With that in mind, USA TODAY added up the estimated costs of living the American dream.
A couple other quotes from the piece to round it out:
It costs a lot less to live the American dream in, say, Indianapolis or Tulsa than it does in metro areas like New York and San Francisco, where housing prices and taxes are sky high.
Only 16 million U.S. households — around 1 in 8 — earned that much ($130k) in 2013, according to the U.S. Census Bureau.
A few thoughts from me:
I'm not sure I agree with their definition of the American dream, but if you ask 10 people about it you'll probably get 10 different answers. At least they took a stab at it.
I'm not sure I'd call $130k a "dream" income, but it certainly is pretty good -- much more than most people make.
A lot of the expenses seem high. For instance, they list food (not restaurants, those are separate) for a family of four as over $12,000. We spend about $650 a month including food for two teenagers -- not anywhere near the $1k a month they list. I think there may be as much as $20k in fluff costs, so the "real" number could be $110k.
Got to agree with the "where you live" quote. Maybe that's why the costs look high to me -- I've always lived in relatively low cost areas of the country. It's been a key part of our family being able to save as much as we have.
Taxes are a killer! Over $32k for them alone!!!
I'm sure many of you will have interesting thoughts on this subject, so I just wanted to get us started and let the conversation flow. I'm looking forward to your comments.
On my post titled Almost Infinite Investment Return, I had one reader ask me what podcasts I listened to (thinking that something we get for free could certainly have an infinite return). I responded there, but also thought it would be fun to post these for all to see and we could each share the podcasts we like. Here are my top podcasts:
This is Your Life -- Great for both career and life. Ex-CEO Hyatt knows what he's talking about as he speaks on work, productivity, and developing a platform. I know him personally as well, so it makes listening to his podcast extra special.
Smart Passive Income -- Pat Flynn knows blogging and I always leave his show with several ideas and insights -- not just for my blog but for my work-life as well.
Freakonomics -- These guys always have a fun look at what we all consider to be "common knowledge."
Entrepreneur on Fire -- This show has lost a bit of excitement for me as the first guests were much better than the ones these days (on average). But I love the monthly income updates. Anyone who can earn $100k a month from podcasting needs to be listened to!
I listen to a few others, but these are the main ones.
You might notice a glaring hole -- there are no personal finance podcasts on my list. It's because I've yet to find one with a format I like. I prefer something about 30 minutes long and is entertaining, interesting, and informative. I've yet to find that in personal finance podcasting, and believe me, I've tried.
How about you? Do you have any podcasts you absolutely love/recommend? Please let them in the comments below.
Here's an interesting article from CNN Money. It has a bit of "down with the rich" tone that I dislike (they say the U.S. has the "top rank in one net worth measure -- wealth inequality") but it lists average and median net worths for Americans, two numbers I don't recall having seen together previously.
Average American Net Worth: $301,000
Median American Net Worth: $44,900
As they point out, a few very wealthy individuals bring up the average and that's why there's a big difference in the two numbers.
A few other interesting facts:
Americans' median wealth puts us in 19th place in the world, below Japan, Canada, Australia and much of Western Europe.
The median wealth of American families was $77,300 in 2010, a nearly 40% drop from 2007, according to Federal Reserve statistics. (due to the economic crisis)
Australians have the highest median net worth, coming in at $219,500.
The article notes that "those down under have a mandatory retirement savings program, where they must squirrel away more than 9% of their income for their Golden Years, and they carry relatively low credit card and student loan debt." No wonder they have higher net worths -- they spend less and save more!!!
The piece says it's easier to borrow in America which eats away at a person's net worth. Yes, yes it does, especially if it's uncontrolled.
I was taken aback by the low net worth number. If most people have net worths in the $30,000 to $60,000 range, that's pretty poor IMO. What are these people going to do in retirement? How are they going to make it?
Second, it lists the "best" markets to become a landlord. I thought I'd compare my results with the best.
Third, it highlights (again) how little the mainstream media understands financial terms, what they mean, how to use them, and so forth.
Let's begin with the financial terms.
The article talks about "profits" and "average returns" in real estate investing. Both of these terms are "net" amounts -- what you have left over after expenses. For instance, a profit is generated when you earn revenue and then subtract expenses. What's left over is "profit". The same goes for investment returns. You take your net gain (income less expenses) and divide it by the amount invested to get your return percentage.
But in this article the author does not take into account investing costs. He simply takes revenue, divides it by the selling price of a unit (amount invested), and calls that "profit" and calculates "average return."
In the real world, profit and average return are calculated after expenses. Yes, some mutual funds publish their "returns" before expenses (or at least they used to), but we all know those aren't real returns until costs are deducted. The case is the same here. I'm not sure if the author doesn't know the difference or is simply ignoring it. Whatever the case, it makes him look like he doesn't know what he's talking about (at least to an informed reader.)
That said, the chart gets one term correct in calling it "gross rental yield" (GRY). And I admit that there is some value in calculating GRY. But it's certainly not "profit" or "average return." Not even close. You MUST deduct expenses to get those numbers. Believe me, I wish GRY was the same as profit and that's what we all took home to the bank! :)
Ok, with that rant out of the way, let's look at their top markets. The list of cities, gross rental yield, average monthly rent, and average unit selling price are as follows:
Just so we're all on the same page, here’s how you read the numbers using Anderson, S.C. as an example:
Anderson's average rental unit sells for $69,900
The average unit there generates $893 per month in rent (gross, no expenses deducted)
This means the average rental unit generates $10,716 each year in gross rents ($893 * 12 months)
The gross rental yield is therefore $10,716/$69,900 or 15.3%
Now, here's how I stack up to that:
The total costs of my units (includes both purchase price and remodeling costs): $579,342
Gross monthly rents of these units: $10,890
Gross annual rents of these units: $130,680
Gross rental yield: 22.6%
A few comments on this:
I wish I was earning 22.6% profit on these units. I'm going to be between 8% and 11% when it all shakes out (which should be this fall as my last unit is done with its remodel, it's filled, and I get to a point where I'm through investing big in remodeling).
I paid for all my units in cash, but my return would be higher if I leveraged my places, as I noted on each property write up I've done on FMF.
There's no accounting for appreciation in these numbers.
One thing that helped me out big-time is that I bought my places near the bottom of the market (not at the bottom, but near it, just as they turned up a bit. If I had started two years earlier I'd probably have double the properties now and be looking at HUGE gains.) Unfortunately, those days are mostly over.
My numbers are against the averages in a market, so it's not really a fair comparison. I'd like it better if I knew what the top 10% or top 25% were earning so I could compare myself with their results.
Well, that's it for now. I will give you a detailed update on my rental units once the smoke clears.
I'd be interested in hearing from those out there who own rental places. What do you think of the article? How do your results compare to those in the cities highlighted?
As for college, the key is to make the payoff exceed the investment. In other words, it needs to be a "good deal." $50,000 invested in college for a job that pays $75,000 a year is a lot better investment than a $200,000 cost for a degree that gets you a $20,000 a year job.
We've discussed back and forth through the years about whether or not it's wise to delay Social Security payments (or, said another way, not take them early). Ultimately, it most depends on how long you'll live -- a question that no one knows the answer to. Ugh.