Income/Expenses – November 2014

From my recurring income series, Our net savings/spending numbers for November 2014:

Expenses were right at the 12 month average.  Some 40% of our spending was just the base housing expenses; another 7% went towards the bills.  21% went towards food, “Health and Fitness” i.e. vaccinations for our international vacation accounted for 12% of our spending.  Various spending on general shopping, etc accounted for the rest, with the Ms very generously chipping in with her parents to buy me some electronic goodies for my birthday.  A decent month on transportation costs, largely thanks to a good month on the bike, only 4% of our total expenses went to transportation; no gas in the SUV and only a couple tanks in the other.

Neither of us worked much OT, yet we still managed to save 75% of our income this month.  We have an expensive December to look forward to, with an expected saving rate near 30%, ack!!!  Then a relatively expensive January to kickoff the new year :(

I’ll set a goal for December of 25%, don’t really want to scrimp on our big vacation too much…  I should squeeze in 3 paychecks to the Ms’ 2, a little bit of OT maybe early on, then burning through a good few weeks of vacation pay.  And expenses probably well over twice the 12 month average.  A near 69% savings rate for 2014 seems to be coming closer to being in the books :)   Happy 2015 if I don’t get back on before we get back!

Dave Ramsey’s Questionable Investing Advice

Listened to a few Dave Ramsey shows recently.  Overall pretty sound advice to most of his callers but he misses wide some of the time and it seems to me that a lot of his investing advice is bad at best, and dangerously self serving at worst.  I’d be very curious to see how his money is really invested.

A big part of his show involves pushing investors to his “Endorsed Local Providers” who just happen to pay him for an endorsement.  It is claimed that in order to be an ELP they cannot reject people due to low investment balances; to serve the new investors listening to his show.  Additionally he loudly endorses the use of loaded funds which he claims to know beat the market and will continue to beat the market.  As evidence of their worth he notes that he himself has money in loaded funds, although he also invests a lot in S&P 500 index funds.

During a recent show I heard him roundly denounce the common wisdom to avoid loaded funds.  When compared to some funds with high annual fees, a front loaded fund with low annual fees is a deal (obviously a true statement that would balance out at some future point assuming matching returns).  To this point, a front load of 5% (common) for a fund that costs half as much annually will take 5 years or so to make up the difference.  But ignore that completely!  Why are we even comparing expensive managed funds.  As Ramsey points out, index funds often have annuals fees much lower than managed funds, sometimes on the order of 1/20th the cost, a 95% savings annually!  Not only that, but they beat 75% of actively managed funds after fees, case closed, right?

No!  Ramsey claims to know which actively managed funds are going to beat the market, and his ELPs do too.  Right….  Try reading your Bogle Ramsey.  Not only do indexed funds beat the majority of active funds every year, but the funds beating the index are rarely the same.  Bogle discusses this reversion to the mean in depth.  In fact, there is between no and negative correlation between morningstar ratings and return.  Despite Dave’s stubborn insistence,  past performance is not an indicator of future performance, or at best it is an inverse indicator.   Not to mention how fund companies roll over or close underperforming funds to look better.  Oiye… Well I can’t summarize all of Bogle’s work here, but it is a good read and explains in depth why actively managed funds are ill-advised.

Dave then launches into a laughable comparison of the housing market to actively managed funds.  A good neighborhood is like an actively managed fund which has outperformed the market for some amount of time…  Maybe sounds good superficially, but people don’t buy into nice neighborhoods because of the past return on the housing.  The reasons are too many and complex to go into why this isn’t a sound comparison.  To state just a few however, like outperforming funds, nice neighborhoods are expensive.  Unlike expensive neighborhoods, where it is clear how to spend that money to maintain the edge (hire better teachers,  maintain nice public areas), high cost funds must constantly try to outsmart the market and clearly do not have a formula to turn high costs into high returns.  Instead most that find their way above average come crashing back down.

So why would Dave push these front loaded actively managed funds so hard?  My best guess would be that most of his ELPs would lose money on low value clients pushed to them by Dave Ramsey if they put them in low cost funds.  Instead, with Dave’s blessing they can front load them and get some guaranteed money before they pull it out to buy some consumer BS.  The evidence for index funds’ dominance is so overwhelming it’s surprising that advisers with fiduciary duty can even put people in front loaded funds.  The only positive thing I could say about front loaded funds is that they’re better than spending the money.  Again I would be very curious to know how much he has in these types of funds?  Just enough to honestly say he owns them and recoup the cost through “endorsement” fees, or is it a majority of his invested assets?  Also, if he’s so confident in these funds why does he bother with the indexes?  Could it be because they are so much cheaper with a significantly better risk to return ratio?

I’d also be remiss if I ignored Dave’s crazy 12% investment return projection.  The biggest error with his logic is that it appears he averages the annual market returns instead of taking the compound long term rate of return.  As an example, if you invested $10,000 and had one year of 10% returns, then the next year had a -10% return.  You’d have $9,900 but Dave’s math would tell you that the return was 0% (average of 10 and -10).  NOT GOOD MATH!!!  Secondarily, and not specific to Dave’s math is the idea that the last 100 years during which the US was largely the world’s lone super power are not very likely to be representative of the next 100 years; no one can say, but world domination is not often long lasting, and therefore neither are the associated returns.  High returns are good if they entice people to invest (which they should) but are bad if they create outsized expectations and deter people from investing when it fails to meet their expectations?  Fortunately it takes many years to be able to honestly determine whether your returns are meeting expectations, at which point people hopefully will be so used to investing and will be happy enough with their returns (my guess would be more like 5% real rate)

Biking to Work – November 2014

trek12Today’s my last work day in November. I biked in 10 of the 16 days I worked, a rate of 63%.  A bit of rain, but not too bad.  I’m also counting a couple days I ran/biked; the shorter days are making it more convenient to combine my running and my commute into one.  I didn’t spend any money on my bike this month, but I did get a nice rear light gifted and received a shiny safety vest from work.  At least half of those bike rides were below freezing and required some significant bundling.  I noticed even with my multi-layered snowboarding gloves my thumbs were numb when I got to work, colder even than when I go snowboarding.  Also threw some winter socks on and a tight underlayer kept me pretty warm otherwise.

That also means November marks the first time my total of biking for the year is greater than my driving (111 days of biking to 110 days of driving).  For December I’m only working 9 days, and I hope to bike 5 of those days if weather permits so I can end the year having biked more than driving!  Wish me luck, definitely going to make that next year by not waiting until April to start biking.

Money is for Spending

Rant based on comments from another PF blog -

Money is for spending by definition.  You can spend it now, or you can spend it later.  You can buy physical good, services, exchange it for a bond, or buy part of a company.  You might hope those things you buy appreciate or produce more money.  But in the end money is a means of exchange, if it wasn’t meant to be spent eventually, it would be worthless.  If it wasn’t for the ability to trade money for goods no one would want money.

Spending on charity, spending on TVs, putting it away to spend later, passing it on to your heirs to spend… it all boils down to spending.  The big 4 money categories where you are supposed to put your money are 1) direct spending on goods and services 2) savings for short – medium term deferred spending 3) investing so you have more money for long term deferred spending and 4) charity – spending money to try to make the world a better place in some way.  Spending!

I shouldn’t say it bothers me when someone says money’s not just for spending, because I get what they are trying to say, but it might be better to say money’s not just for spending now.  Your money in savings and investments might provide the comfort that you will be able to spend what you need to in the future.  I’m only afraid too many people only see abstraction in the delayed gratification of saving and investing.  For at least some of these people it would be helpful if the ideas were reframed around… SPENDING!!!  yay!  No shortage of evidence that people love spending, most of America is addicted to that good short hit of adrenaline.  Maybe convincing people that they’ll benefit by spacing out those hits would be a first step towards some financial sanity.

Anyhow, when I saw someone all up on their “money isn’t just for spending” high horse it made me think about how many people aren’t helped by these platitudes and actually are smart enough to see that at some base level money is only for spending, so why should I listen to someone who doesn’t get that.

Income/Expenses – October 2014

From my recurring income series, Our net savings/spending numbers for October 2014:

Expenses were very low to begin with.  Some 50% of our spending was just the base housing expenses; another 5% went towards the bills.  22% went towards food, with our lowest food spending for quite a while.  Various spending on general shopping, etc accounted for the rest.  A decent month on transportation costs, largely thanks to a good month on the bike, only 9% of our total expenses went to transportation; I put gas in my SUV for the first time in four months.

With the Ms spending most of the last month traveling for work again it was a bit easier on the spending, but thankfully that seems to be coming to an end.  Between a decent amount OT for both of us and our better spending we managed to save 80% of our income this month.  that puts us at 72% on the year so far.  We have an expensive trip coming up though, so my projection has that annual savings rate dipping to about 67% come year end.

I’ll set a goal for November of 75%.  We’ll only squeeze in two paychecks each and probably little to no OT, though expenses shouldn’t be too high either.

Biking to Work – October 2014

trek12Today’s my last work day in October. I biked in 14 of the 23 days I worked, a rate of 61%.  Lots of rain and the shortening days are making biking more and more difficult.  I got pretty soaked a couple times.  I didn’t spend any money on my bike this month.

For November I plan to average at least 2 days a week.  Through these four winter months I’m committing to ride at least once a week no matter what, making for some nasty Friday rides…

Income/Expenses – September 2014

From my recurring income series, Our net savings/spending numbers for September 2014:

It was a pretty darn average month with a huge drop off from our extremely spendy August.  24% of our total spending was for travel and vacation related to our upcoming international trip.  Another 28% went towards the home and 20% towards food.  Various spending on bills, general shopping, etc accounted for the rest.  Another great month on transportation costs, largely thanks to a good month on the bike, only 5% of our total expenses went to transportation, and a good portion of that was upgrades to my bike reliability and safety.

With the Ms spending most of the last month traveling for work it was a bit easier on the spending, but certainly not the kind of work life balance we are looking for.  Between a decent amount OT for both of us and our better spending we managed to save 70% of our income this month.

I’ll set a goal for October of 70%.  With only a standard two paychecks we’ll still work some OT, but we’ll keep booking a lot of the travel for this winter.  As much as we’d also like to bring some of that food spending down, we’ll see…