Free Ebook.

Enter your email address:

Delivered by FeedBurner

« Gift Catalog Donation Made | Main | How to Define Net Worth »

November 19, 2009


Feed You can follow this conversation by subscribing to the comment feed for this post.

This is definitely food for thought. I always cringe when I think how little I contribute to retirement versus the cable bill, the cell phone bill, etc. Thanks for posting this.

I was faced with the same problem; So I solved it. I cut my cable down to the basic service and havent looked back since. I really dont miss "cable" that much. Anything I want to watch I can always rent or watch on the net. It took a while to get used to having a reduced number of channels, but right now, I dont even notice. What I do see though is a $60/month difference. I may drop vonage and try skype... trying to sock away! Anyone on here try MagicJack or anything like it? Does it work?

While this post makes a good point, I do take issue with the blanket criticism of full-featured cell phones. For less than half the quoted cost for an iPhone, I have a similar phone. The $80/month I pay, in addition to giving me the convenience of a cell phone, PDA, email, etc., allows me to go without a home phone (about $30/month without long distance) and go without a separate internet provider (about $10/month for dialup, $20 to $50 for broadband). Compared to my next best alternative, I'm paying less than $30/month for all that convenience. I don't know about you, but to me that's a bargain!

10% market returns my butt. We are presently living in a world where the SP500 10 year return was negative and the 15 year is a hair over 7%. Past performance is no guarantee of future returns. But is sure does look sexy to post a million dollar return over 40 years, doesn't it?

We don't spend a lot of money on telecom or other monthly expenses. We don't have cable, but we do have a basic mobile plan, basic broadband and a(n) (underused) gym membership. It's amazing to me what many people spend on monthly subscriptions for mobile phones, cable, etc.

Yes, several months ago we dropped our landline for MagicJack. I think that the sound quality is fine, though some people I talk to claim that the volume is too low.

Some disadvantages I'd list are:
- your phone service is only as reliable as your ISP
- no easily visible "new message" indicator (i.e., you have to look at your local computer, dial into voicemail or check email for messages)
- loss of phone service during power outages
- have to keep your computer on and logged in all the time

Overall I'd say that these are minor inconveniences compared to the increased features we get for $400+ of savings per year!

10% per year of market return is, in my opinion, way too optimistic. I recommend to plan more like towards 5% to 6%. Even if I am wrong, it's still better to end up with too much money then it is to end up with too little.

As for Magicjack, I've heard several anecdotes that they do work as advertised.... However, they're just a VOIP device, but just happen to be one being marketed for non-techies. Truth is, there are a lot of VOIP options out there, both hardware and software, and marketing aside, they can be just as easy to use. In fact, I use mine for free via Skype (computer-to-computer only). The cost usually comes in when you want to reserve a land-line number and access along to your VOIP.

The main take-away message to this enty is good though. Make certain savings a habit, and it can have a profound impact later on in life, and without much pain if you're used to it.

I have my extra computers hooked up to my network and use them at content repositories and back up mechanisms right now, so leaving a computer on 24/7 doesn't bother mean and I can always SSL into it to see if I have any messages (albeit a pain in the @ss to do so) Might not be a bad idea though... thanks for the advise Jeff.

I hardly use our Vonage phone service right now anyways, I only hope I can get the wife to accept it since she is the one that uses it to call her family 22/7.

Curse my lack of proof-reading. :D I post these during spare lulls at work....

Anyways, I also wanted to add that if you are like me and don't use phone too often, you can use a combination of free VOIP and a cheap discount cellphone.

For example, I use a Tracfone right now. Even though they're considered as cheap 3rd party phones, the signal and coverage is in fact, technically better than many premium service providers.

On top of that, because I rarely use the cellphone, my total phone bill is also cheap. At roughly $0.09 per minute, it usually comes out to be about $5 a month for me (my lowest was $3, and my highest so far was $15). That and I still have a cellphone.

For longer conversations, I usually fall back to Skype. There, it helps to have friends who are also on computers.

Food for thought....

Entertainment is an important component of a happy lifestyle and provides necessary relaxation, entertainment and education.

I don't believe that live entertainment is good value for money at all, especially when you add in all of the other costs involved in a night out, such as travel, parking, food & beverages etc.
This is especially true for older couples like us that don't care to be out on the freeways late at night, sharing the road with intoxicated drivers. In our younger days we had season tickets to the San Francisco 49'ers. but after two disasterous seasons we gave them up, something we have never regretted. We find cable to be very good value since it brings first class entertainment, education, sports and news, in high quality HDTV, right into the comfort of our family room where we can watch it on cold winter evenings in front of a cheery fire while relaxing in comfortable recliners. Another excellent and inexpensive entertainment is Netflix that enables us to choose our movies from tens of thousands of titles, and very importantly to read customer reviews before making our choices. Compare this with driving to a movie theater and paying at least $10/seat to watch a new release that you know little about, surrounded by lots of people, some of whom may even have the H1N1 virus.

I would have to be really hard up before I would drop or cut back on Cable or Netflix.

Another area where you obtain excellent value for money is eating at home. It's amazing sometimes to work out the actual cost of preparing a fine meal from some of the best ingredients available, ex. Alaskan King Crab, and then compare it with what a nice restaurant would charge, plus tip, and the exorbitant price they charge for a bottle of wine. We eat out twice/week to give my wife a break, but use inexpensive neighborhood restaurants.

Here are the actual percentage returns:
-------- S&P500 -------- WIL-5000
05yr ... 6.07 ............ 6.29
10yr .. -2.47 ........... -1.38
15yr ... 6.03 ............ 6.21
20yr .. -1.28 ........... -0.51

The only way that most people can better these pathetic returns is by learning how to practice fund selection and market timing. I say "fund" because it is not practical to keep track of sufficient stocks yourself in order to maintain the necessary diversity in your portfolio. My 17 year return is 19.14%, it was over 21% before I became very income only oriented in 2007.

$4000/yr for an iPhone? I think not. Current ATT charges for the base plan is about $80 with taxes (includes unlimited Internet). That's $1920 for 2 yrs, then add in $200 for the phone. Still not even close to $2000.

And 10% market rate? That's pretty optimistic.

Cell phones, cable, and internet would be the last luxury expenses my husband and I would cut. As cmadler and Old Limey already covered, those items allow us to save tons elsewhere.

We've also started cooking more at home. Most recently, we've been recreating some of his family's recipes. Homemade cornbread stuffing from scratch (like make-your-own-cornbread and wait for it to cool kinda scratch) and OJ Sweet potatoes take HOURS, but is the most delicious stuff EVER!!! I'm living happy with those 2 dishes for the rest of the week. :)

Marotta is right about spousal discretionary spending limits; my wife and I have an agreement of no more than $100 per week total in expenditures without consulting the other. In practice, we usually tell each other if we're going to spend more than $50 in one sitting regardless of whether we breach the $100 total for the week. It's really helped keep the budget on track.

To augment what BenG and Old Limey said, that is also why it's so important to have proper diversification and asset allocation. If all of our money went into an S&P500-like mutual fund, we would have been in a wild roller coaster for the past 10 years.

There's just one thing I'd like to tweak regarding the S&P500 performance. I prefer to look at something an actual index fund such as VTSMX instead. Because, if you think about it, that's realistically what you will be buying if you wanted a one-fund total stock market exposure.

Most funds like that also offer a dividend, which floats somewhere between 1% to 2%. It's doesn't change the bottom line, but it's worth noting, because even over the course of 10 years, it could add up.

Finally, I'm have a feeling Old Limey said it tongue-in-cheek, but the truth is, market timing may be a fool's errand. And I say this fully confessing that I have also participated in market timing in my stock trades. But I only do it as a learning experience, and not so much because I think I am somehow smarter than the market, and therefore, will profit from it.

The bottom line is, it's hard to time the market. Anybody know without a doubt what will happen to the stock market one week from now? A month?

Oh, almost forgot about the iPhone. I once saw a total cost of ownership calculation for a brand new iPhone, via AT&T, and the cost for a 2 year contract did come out to be about $3500. However, I understand that you can lower the cost significantly now, especially if you buy an older, unlocked 3G only phone.

Still, at something like $1000 per year (data plan included), it's entirely too expensive for me to justify. That's why I have a cheap cell but that's it. No landline either, because believe or not, it costed more than my cellphone!

I've been trying to get this point across to one of my young relatives ... that maybe she'd have more $$ and could work less if she hadn't saddled herself with satellite radio, top-tier cable with premium channels, Netflix and so forth.
I'm not suggesting folks give up everything, but there are less-expensive ways to have these goodies.

It's very easy to time low volatility sectors, the prime example being junk bond mutual funds. They can be timed with around 3 to 4 switches/year.
Examples are BJBHX, SHYAX, MWHYX and NTHEX with ANN= 59.47%, 57.04%, 57.30%, 59.19% for the current year.
The best indicator is a filtered moving average with the best values obtained by backtesting. I used these very successfully over many years until I made the decision to go as conservative as you can get by holding only Muni bonds and CDs held to maturity.

The very highest returns are obtained by timing very volatile sectors, currently some international sectors, and back in the 1998-2000 period it was the Hi-Tech sector. The trouble with very volatile sectors is that they turn on a dime and you have to make superfast decisions. Sometimes the decisions are right but sometimes they are wrong and just after you get out they start up again. When you're right it's easy to think that you were brilliant whereas in fact you may have been just lucky.

Below is an extract from the daily log file I keep of my portfolio. During this period I was 100% in 4 or 5 very volatile Hi-Tech funds and had ridden the market up through 1998 and 1999 into March 2000.

"03/09/2000",3369058 (My Maximum Value - Fully invested - NASDAQ = 5046.86)
"03/15/2000",3021835 (Completely in Money Market funds - NASDAQ = 4582.62)

This is how I ended up losing $347,223 in the four market days it took me to get out when the DOT.COM bubble burst. As it transpired the NASDAQ didn't hit bottom until 2 1/2 years later on 10/9/2002 when it hit bottom at NASDAQ = 1114.11.
This is the point I am trying to make about market timing and why it saved my @ss.

Losses like these in 4 days, -$9,122, -$130,557, -$84,481, -$123,063 should get anyone's attention, especially after an unsustainable rise, but the facts are that the vast majority of investors didn't get out because they had bought into the fallacy of Buy and Hold.

I haven't had cable for years now. I thought it was pretty smart and that I was saving a ton of money. However, we still leak money all over the place. After reading some of the comments, maybe I'll try the couch-potato way again and see if it can keep us at home instead of compulsive spending elsewhere.

As for VOIP, I used Vonage for about 8 years, but recently switched to T-Mobile@Home when I got a TMo cell plan. It's only $10/month for unlimited VOIP. Not as cheap as magicjack or skype, but cheaper than and just as convenient as Vonage. Requires 2 yr contract.

Old Limey, this is going to be kind of funny, because I sort of agree with you, but with a different spin.

Take a look at the housing bubble we just had and how that came about. One of the key contributors was faulty risk assessment of MBS based on backtesting. The resulting trend or moving average in those, prior to the bubble burst, showed a resilient and even well-diversified instrument that was deemed worthy of AA or above in rating.

Even with debt instruments, I think there is a limit on how far we can and should go with back tested technicals.

Typically, it's true that low-volatility sectors can be more predictable, but I believe that's only true in a "normal" trending market. We are in an abnormal market. There are several ways to cope with this, but the one thing I must politely disagree with is that normal rule sets for normal markets would not apply in abnormal markets. Moving averages are only good so long as the market continues to trend along those averages.

In the end, the answer has always been to be able to somehow out-time and out-maneuver the market. But the problem is, can we really do that in practice? Or are all these quants with their fancy math degrees who worked in name-brand risk assessment think tanks such as Standard and Poor's, using elaborate computer models and 20 years of back-testing are really just not all that bright, and they've collectively missed something that we haven't?

Maybe that's possible... but as you have said in so many words, we must be careful of the patterns we think we see in the noise.

Back in the early 90's when I was developing an investment code that I eventually marketed I was fortunate in making contact with over 200 users of the database that it used and we all communicated daily on a website bulletin board. There were some very experienced investors among them that gave me all kinds of good ideas and some became my beta testers. There were 2 or 3 that were self proclaimed experts in market timing and one day we decided to collectively create a timing system that would rotate between 2 funds, it would hold either the best Fidelity Select fund out of technology and healthcare or hold home finance as the money market fund, using an automatic trading system produced by another developer that used this same database. After very extensive backtesting and tweaking of the system by numerous investors we reached a point where we finished with backtested results that we just could not improve upon no matter what we did. At that time in 1995, we had 7 years of data starting in 1988, and the backtested results had 26 winning quarters out of 28 and a 7 year annual compound rate of return of 59.4%. The system was christened "The Winner" and I wrote an article about it in a newsletter that the database proprietor published.

Guess what! When some of the guys started using "Winner" going forward in real time it was a big disappointment. Years later another developer created a very sophisticated trading system that used artificial intelligence, I was very impressed when he demonstrated it at a conference. Later I asked him how it had fared recently during a very tricky period in the market - he replied, "It didn't work and we had to override it."

That's basically what you were saying and it can be summarized as "History never repeats itself".
This is why the only sector I used very successfully for many years were low volatility junk bonds and they give you lots of time to get in and out using exponential moving averages.

When I got out of the DOT.COM bubble just after the top the primary force that prompted my action was that I have a tremendous aversion to losing a lot of money quickly and my pain threshold was penetrated pretty swiftly. I didn't wait for a signal - the losses were signal enough.

Thank you for that thought, Old Limey.

It truly is fascinating, and I will take a closer look into your methodology, regarding trends with low volatility sectors.

Aside from filtered moving averages, were there any other major technicals that you used in the analysis?

I like this article alot. I do think that we, as Americans, spend a lot of money in small increments. I am sure, including myself, that if we took a look at what we spent in a week, that we would be outraged, well, most of us who give two shakes of a stick about our finances. I have a similar post about this on
my bad credit information website

Everything has done better than the S&P500 recently:

Ten Year Average (Total Index Average)
9.78% MSCI Emerging Markets Index (23.10%)
11.67% MSCI Australia Index (10.09%)
8.87% MSCI Canada Index Fund (11.76)

The comments to this entry are closed.

Start a Blog


  • Any information shared on Free Money Finance does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. All posts are © 2005-2012, Free Money Finance.