Personal Capital; and how to unload your unwanted stocks and funds

personal capital

Personal Capital

If you have come here, read thru the Stock Series and decided the simple low-cost approach described makes sense, you are now faced with the problem of how do you get from where you are to where you want to be. That is, what do you do with all the investments you already have? How, exactly, do you move from point “A” to point “B”?

If you are like many readers, you’ve come to this blog having already spent years, maybe even decades, investing. You very likely have a wide range of stocks and/or funds that seemed like a good idea at the time but now, maybe not so much.

The first order of business is to get a grasp on exactly what you currently own, what it is costing you in fees and how/if it might fit into your new and future plans.

You may already have this well organized and at your fingertips. If so, well done and you can skip ahead to Part 2.

Part 1: Personal Capital

If not you’ll probably want to use one of the free tools out there, and Personal Capital is the coolest I’ve seen and one of the easiest. It is the one I recommend and it is the newest affiliate here on the blog. What that means is, if you choose to use it, this blog will earn a commission.

To use Personal Capital‘s free tools, click on the link and log in. Next you’ll enter your investments and bank accounts. While I don’t use Mint, some of my FI friends tell me entering your data into PC is even easier.

Once your info is entered, you’ll be able to keep track of all your accounts and the data will be updated automatically. You can even enter any paintings, antiques, jewelry and/or any other valuables you might own. Of course with those you’ll have to decide on their value and it won’t be automatically updated.

Your PC dashboard then automates your net worth calculation and updates every time you log in on your desktop, phone or tablet.

Once you are done, assuming you’ve entered everything correctly, you’ll have complete handle on your financial situation:

Net Worth

PC net worth

Fees on your funds

PC fees

PC retirement fees

Your current allocations

PC allocation_large

Cash Flow

PC cash flow

Retirement Planning

PC retirement

Note: The above illustrations are all courtesy of Personal Capital, from their website and are not from an actual client account.

At a glance now you’ll see what’s working and what you might want to change. As I say, very cool.

So what’s the catch?

Skeptic that you are (or should be) right about now you’re thinking:

“If this is all free, how do they make their money?”

Boy howdy! You sound like me!

This is a lot of cool and sophisticated stuff to provide for free and around here we know even we can be conned. When offered free stuff, it always pays to understand how the money flows. While my pals had already filled me in, this still was one of the key questions I had when I met with them at FinCon (see Sidebar below). Nothing like hearing it personally.

Turns out they are also financial advisors and several buttons on their site will direct you to this service. So what is happening here is, by offering these tools, they are also collecting data and in the process cultivating a very clean prospect list for their services. If your assets are large enough they will reach out to you and offer to sign you up.

My independent sources who have experienced this assure me it is very low key and low pressure. They don’t want to alienate anyone. The thinking is that as people get used to using their tools over the years, should they ever decide to engage professional guidance, Personal Capital will be the first in mind and the “go to” place. Seems a smart approach to me.

Meanwhile you can happily use the free tools and ignore the advisory service for as long as you like.

So should you use their advisory service?

Well, the the annual fees are:

.89% for portfolios up to $1 million and then…

  • .79% for the first $3 million
  • .69% for the next $2 million
  • .59% for the next $5 million
  • .49% over $10 million

Let’s look at it this way:

  1. If you are coming from a traditional advisor and paying upwards of 1% a year, Personal Capital looks very good and is worth your serious consideration. Especially if you find value in personal attention.
  2. If you just want some guidance setting your asset allocation and rebalancing it automatically, Betterment is a less expensive option.
  3. If you have read the Stock Series here and are comfortable with what you’ve learned, you should be able to handle this yourself. Go directly to Vanguard and their low-cost index funds. This is your least expensive option and at a million plus invested you’ll even qualify for their Flagship Service and some personal guidance.

Part 2: How to unload your unwanted stocks and funds

OK, now that you have the tools in place to assess what you own…

…once you do you might not like what you see.

But before dumping everything and moving on to better choices, you’ll want to think about some important considerations, mostly around the tax implications of selling an investment. But also how and where you want your assets invested going forward. Ideally you want to get this set up right and then, other than occasionally rebalancing, leave it alone.

First you’ll want to decide what your asset allocation should be. Selecting your asset allocation discusses ways to approach this and in it I share what we do personally.

When thinking about your allocation, think across all your investments and, if you are married, across all your investments for the both of you. For instance, our personal allocation to bonds is 25% and I hold our bond fund in my IRA. We could just as easily hold it in my wife’s IRA. Either way, it is 25% of our total holdings and keeping it in one place makes rebalancing easier.

Once you’ve decided where you want your investments to be, it is time to figure out how to move them around.

I link to lots of stuff; basically anything I see that I think might be useful, interesting or entertaining to you the reader. A few of these links are affiliates and these, along with the AdSense ads at the top and imbedded in some posts, pay the bills around here.

Personal Capital (PC) is the most recent of these and one of only six I have accepted. If you are curious immediately below is a list of the others.

PC first came to my attention ~10 months ago when a couple of financial bloggers I deeply respect suggested it would be a good fit here.

While impressed with what I saw, I waited until this past FinCon (financial bloggers conference) where I had a chance to spend an hour+ face-to-face with Michael the Director of Marketing, quizzing him closely and getting my questions answered.

While the affiliates here are companies and products I have personally vetted, those in the AdSense ads are not. Please see: Disclaimers

Important Resources:

  • (unfortunately Vanguard doesn’t have an affiliate program)
  • Personal Capital* is a free tool to manage and evaluate your investments. With it’s great visuals  you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you’ll see what’s working and what you might want to change.
  • Betterment* is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review
  • YNAB* has the best budgeting tools going and just might be the Best Place to Work Ever
  • Republic Wireless* is my $10 a month phone plan. My daughter is in South East Asia and is on the $5 a month plan. We talk whenever can and for ever long we please. My RW Review tells you how.
  • Tuft & Needle* helps me sleep at night. A very cool company and a great product.

*These are affiliate links and should you chose to do business with them, this blog will earn a small commission.

Unrelated, but here’s what I’m currently or have just finished reading and enjoyed*:

How we came to be what we are, behave the way we do and believe what we believe. My favorite in this group.

Where people who live to be 100+ live, how they live and what they eat.

Bad monkeys are Sapiens that need killing, and Jane is on the job. If you are already paranoid, you might want to skip chapter: white room (iv)

Why the future might be incredibly good. Unless the grey goo gets us.

*If you click on the books you’ll go to Amazon, an affiliate partner. Should you choose buy them, or anything else while you there, this blog will receive a small commission. This doesn’t affect what you pay.

Posted in Money | 11 Responses

Stockchoker: A look back at what your investment might have been


Back in February Mr. 1500 Days invited me to participate in his 10 Questions and a Pizza Place interview series. It was fun to do, readers seemed to enjoy it and the 1500 Days are cool folks. So of course I’ve been planning to steal the idea ever since.

When I came across Todd Froemling and his newly created, I knew the time had come.

I love simple and this tool couldn’t be more simple. Enter three data points — a stock or fund, a date and the amount invested — and it spits out how you would have done. Along with a snarky comment.

The next time your broker, advisor, brother-in-law (not all the same person, I trust) or your drunk and bankrupt…

Mature man w/glass of beer

Uncle Dick tells you:

“Index Funds? Those are for weenies. Put your money in XYZ stock or my secret high-fee star manager fund. That’s what all the smart money does!”

…you’ll be able to pull out your (Stockchoker) tool and see just how many used Honda Civics you could have bought with your losses.

My thanks to my pal Kathryn who brought Stockchoker to my attention when she profiled Todd on her wonderful MSB Cheatsheet. You’ll find a link to it in the interview.

But now, let’s put Todd under the bright light and interrogate him…

First, let’s talk about Stockchoker:

What is Stockchoker?

Stockchoker is a simple new web tool that answers a fundamental question: What would a past investment be worth today?

You get to pick the company or fund, the investment date and the investment amount. Once you’ve done that, Stockchoker tells you how much the investment would be worth today and provides some other useful information, such as the annual rate of return, the net gain (or loss) and the number of tacos you could order at Jack in the Box with that much money.

Where did the cool name come from and what’s the meaning of the “choker” part?

I love puns and I wanted the site to have an easy-to-remember name. There isn’t really another word I can think of that rhymes with “broker” and makes sense given the content of the site.

Joker was already taken, plus it might’ve cast doubt on the accuracy of the data. So that leaves croaker, poker, soaker, toker…

…toker would’ve been kind of funny, now that I think about it.

What prompted you to create the site?

I was discussing investment strategies with my parents several months ago. They compete against each other with their respective Roth IRAs to see who can do better, which seems like amazing fun (even though it’s probably a bit dangerous if you’re over-competitive).

At one point, the topic turned to Apple stock. If their Roth IRA competition is a game, Apple stock is my dad’s cheat code. He mentioned a friend who’d sold several hundred shares in the early 2000s and then started trying to calculate the size of the fortune that was lost.

I hopped online, assuming there was a popular tool that answers these sorts of questions. As it turns out, there wasn’t. That’s when I decided to build Stockchoker.

What makes it great?

Its simplicity. On most financial sites, you’re bombarded with charts, graphs and other statistics that are tough for non-finance people to comprehend. Stockchoker’s data should make sense to anyone with a fourth-grade education, but it’s also sophisticated enough to use as a legitimate comparison tool.

Kathryn Cicoletti

Kathryn Cicoletti, horseshit

Kathryn Cicoletti

…the mastermind behind the MSB Cheat Sheet, suggested using the site as a quick and easy way to evaluate funds that a financial advisor might try to sell you. Using Stockchoker, it’s incredibly easy to compare the funds they peddle to lower-cost index funds over any period of time. If the index funds have a better return, you’d probably be better off going that route.

Where does the data come from?

Yahoo! Finance is kind enough to provide current and historic stock data to programmers.

Do the results include stock splits and dividends reinvested?

Yup. To quote Yahoo! Finance:

“Data is adjusted using appropriate split and dividend multipliers, adhering to Center for Research in Security Prices (CRSP) standards.”

How are ERs (expense ratios) accounted for in the results?

These are baked into the data Yahoo! provides. As an example, compare VTSMX and VTSAX. Those funds have identical holdings, but VTSAX has a slightly lower ER (because it requires a larger minimum investment). You’ll notice VTSAX always comes out a little ahead thanks to the lower ER.

How about fees paid to advisors and sales loads (commissions)?

You’ll have to account for these yourself. It’s not possible to factor in any financial advisor fees since those would vary from person to person. Don’t overlook these; they can add up fast.

I love the gratuitous, free smart-ass comments that come with each result. What’s up with those?

smart ass

I wanted to soften the blow for users when they see how much they could’ve made on an investment by converting the dollar amount to something goofy. For instance, losing out on a private Toto concert doesn’t sound nearly as bad as losing out on a couple hundred thousand dollars. Well, that’s just my opinion.

I got lazy and ended up using a lot of items I’ve purchased throughout my life so I didn’t have to spend too much time looking up prices. So there’s a lot of Lord of the Rings, Harry Potter and Nintendo references. I’m super cool, BTW.

Your site doesn’t provide much data – can you rely on it to make smart decisions?

It’s great for comparing long-term investments – particularly when looking at mutual funds. Just make sure you go back far enough.

Looking at short-term returns can be extremely misleading. Take Nintendo stock (NTDOY); It’s up 50 percent from a year ago. Must be a great stock, huh? Well, not if you back up five years. It’s down nearly 40 percent.

I wouldn’t base a major financial decision only off of Stockchoker, but it’s an excellent place to start.

Are you planning to add to the site?

There are several improvements I’m planning to make when time allows. For instance, right now you can only go back 20 years. I’d like to extend that for companies and funds that have a longer history.

A blog is also in the works. I’d like to think I’m a reasonably smart dude, but in spite of that, I’ve made some really dumb investing mistakes in the past year. Luckily, it’s kind of balanced out with a handful of good moves (thanks, Under Armour).

It might be helpful for newer investors to read about the missteps and why I thought they seemed like smart moves at the time. Hopefully, they avoid similar mistakes.

Personally, I’d love to be able to compare stocks/funds side-by-side. Any plans to make that possible?

I’ll add it to the to-do list. Thanks for the suggestion!

OK, now tell us about Todd!

Most readers of my blog are at or are pursuing FI (financial independence). Is this a goal of yours?


I always think of a line from Forrest Gump when I hear this sort of question. It’s when Forrest finds out part of his shrimpin’ fortune was used to start Apple Computer, Inc:

“Lieutenant Dan got me invested in some kind of fruit company. So then I got a call from him, saying we don’t have to worry about money no more. And I said, that’s good! One less thing.”

That last part sort of sums up my feelings perfectly. My desire to invest well isn’t motivated by extravagant things I want to purchase down the road. As a person who craves simplicity, my goal is to reach a point (in a couple decades) where I never have to think about finances again.

Do you have an investing background?

No, not at all. My wife and I bought a house recently, so we transitioned from saving-for-a-house mode to saving-for-retirement mode. I’ve always had a strange obsession with stats and numbers, so stocks and investing naturally became my favorite thing to read about.

So you own rather than rent? Explain yourself!

Yeah. For one, my wife and I both hate moving, so a sense of permanence was very appealing. Throw in super-low interest rates and a housing market that’s still not fully recovered from the Great Recession and it seemed like an ideal time to buy.

How have you learned what you’ve learned about investing?

Lots of reading and, unfortunately, a little bit of trial and error. The tricky part is you can’t trust a lot of what you read.

For instance, you could hop online right now and find five articles that explain why the energy sector is going to continue its crash. Then you could find some other articles explaining why it’s set to make a huge rebound at any moment. Who’s right?

Most of my mess-ups have occurred when when I try to time the market based on something I’ve read. When Carl Icahn insisted back in May that Apple shares were worth nearly double what they were selling for, it seemed like a great time to buy. Since that point, Apple stock is down double digits. Whoops.

My advice today would be this: automate, diversify and self-regulate. My wife and I set up our Vanguard accounts to automatically invest in our Roth IRAs each week as well as Vanguard’s most diversified index fund. That’s a much better and healthier approach than what I was doing initially – trying to manually buy at low points in the hope that I was catching the bottom.

I’ve done well with the handful of individual stocks I’ve purchased, but it’s a dangerous game to play (imagine the poor people who bought Volkswagen stock last week). That’s where the self-regulation comes in. I won’t ever be more invested in individual stocks than index funds, as tempting as it might be at times.

What’s been your worst mistake?

That time last fall when I thought energy was about to rebound so I bought some VGENX (Vanguard’s energy fund).


If a magic genie gave you 1,000,000 tax free dollars, what would you do?

I’d add a zero to the weekly amount my wife and I auto-deposit into Vanguard’s total stock market index fund (VTSAX). I’d also go to Chipotle a lot more.

What’s your day job?

I’m a software engineer at Motorola Solutions. I specialize in web-based user interfaces.

What’s your all-time favorite job?

I lived with my brother in San Francisco for a couple summers. One of those summers, I worked at Bubba Gump Shrimp Co. as a host (that’s probably why I have every line of the movie memorized).

My job a lot of days was to talk to visitors during the minute or two before they were seated. There were a ton of international visitors, so I’d try to guess what country they were from. I was always blown away by how nice everyone was, even when my guesses were completely wrong.

The biggest perk, though – shrimp meals every day. It might’ve gotten old, but it was glorious for the two months I was there.

Favorite music?

I’m a little all over the place. The Beatles are at the top of my list. My other favorites, in no particular order, are David Bowie, Elton John, Lady Gaga and Billy Joel. Since I grew up in a St. Louis suburb, Nelly has to be on the list, too.

When I’m coding, I can’t do music with words; it’s too distracting. In those cases, I’m all about Lord of the Rings music and the Interstellar soundtrack. I think I inherited that behavior from my brother, who’s the most brilliant programmer I know.

In what region of the country do you live?

I’m in the Midwest, about an hour west of Chicago. On a related note, I’ve heard that Midwesterners are the only people who use minutes rather than miles to explain distances between two places. I’m not sure if that’s true or not.

If I could live anywhere in the world I’d be in…

The Caribbean, on a small tropical island with high-speed internet and a Chipotle. It would also need to have an airport with direct flights to and from Chicago, St. Louis and San Francisco. Could I buy that with $1 million? I might need to change my earlier answer.

What kind of car do you drive?

A nine-year-old Honda Civic (if you were wondering – yes, that’s one of the “you could’ve bought” items that appear on Stockchoker periodically). My beloved 1998 Toyota Camry died last year. #neverforget

If I could meet anyone in history, I’d be sitting down with…

Abe Lincoln

Abe Lincoln

And the first question I’d ask would be…

How close was Daniel Day-Lewis? Did he deserve the Oscar?


Daniel Day-Lewis

In 50 years (maybe tomorrow  we’ll all look back and ask: What the hell were we thinking when we…

Let the Kardashians have TV shows. They’re useless.

The biggest threat to the human race is…

The Interview 2, if someone ever decides to make that movie.

Who inspires you?

My family.

(JL: Here he clearly misses the opportunity to herald

So those are the questions I wanted answered. Got some of your own? Ask in the comments and we’ll keep Todd under the bright lights till he responds.


Addendum 1:

Want more? Here’s Kathryn’s video interview with Todd

Addendum 2:

Personal Capital* is a great free tool to manage and evaluate the investments you have, including costs. Most folks visiting here already have a range of investments and now you can track and compare them. At a glance you’ll see what’s working and what you might want to change. Very cool.

Then as new investments catch your eye (or are being pushed on you), Stockchoker gives you a quick and easy way to check them out.

*Personal Capital and Amazon (the books below) are an affiliate partners and should you choose to use them this blog will receive a small commission.

Unrelated, but here’s what I’m currently or have just finished reading and enjoyed*:

How we came to be what we are, behave the way we do and believe what we believe. My favorite in this group.

Where people who live to be 100+ live, how they live and what they eat

A novel: MacGiver gets stranded on Mars

Why the future might be incredibly good. Unless the grey goo gets us.

Posted in Money, Random cool things that catch my eye, Stuff I recommend | 12 Responses

Case Study #14: To Dream the Impossible Dream (and then realize it)

Cinque Terre sunset

Cinque Terre


That’s one of the less ugly responses you can expect from the typical American if you are bold enough to suggest that financial independence (FI) and early retirement is a realistic goal.

Push a little further and you might get a grudging: “Well maybe. If you lead a perfectly smooth life and always earn a high salary. But not in my messy real world of fits and starts.”

I’ve been writing this blog for over four years now and I’ve heard from numerous people who’ve achieved FI or who are well on their way. Not a single time that I can recall were their paths smooth.

We all live in the messy real world of fits and starts.

Today’s Case Study is unique in that MP wrote not to seek guidance, but rather to share her story.

At the end of her first note she apologized for writing a “tome.” Not a tome, I replied, but a post if you are willing. Fortunately, she was.

It is a tale of low-paying jobs, low saving rates, divorce, building a career, wandering in the investment wilderness, high savings rates, charity, retiring right into the teeth of the 2008 collapse, a money draining (if beautiful) house, reaching FI and a life of traveling light to be followed with a life of giving back.

I find it a compelling, inspiring story and one that gives me way too much credit. Maybe you will too.


Nice, France

Dear Mr. Collins,

I’m writing to thank you for your educational blog, especially your Stock Series. But really, almost every post you’ve written has been helpful to me.

I found your blog (through MMM, I think) a couple of years ago, and it has guided me in some important financial decisions, and ultimately life decisions. Please let me bore you with the details.

By the time I found you, I was no slouch in the savings & living-below-my-means department. And all of my taxable investments were already in Vanguard’s stock index funds.

I should really start from the beginning…

In college I came across a newspaper article about the power of compounding, so when I got my first real job in 1989, I maxed out on 401(k) and chose stock mutual funds that did well in prior 10 years.

I had no other savings because…

  • I was making an entry-level job salary of around $25,000
  • I was married to someone who earned less than I
  • My husband’s financial motto was, “If you don’t owe, you don’t own.”

He was no dead-beat, but he was perfectly comfortable living from paycheck to paycheck.

I was in that low-paying job for 10 years, and in that time, my husband and I bought a modest house by borrowing the 20% down payment from my 401(k). Also, my husband started his own business and earned even less money.

In short, we didn’t save beyond my 401(k).

Then in 2000, I got another job (with a 50% increase in salary–going from $40,000 to $65,000) and divorced my husband. He got the house, I got the 401(k) worth under $100,000 with the loan already paid off.



A friend let me stay in a spare bedroom for free until I could find an apartment to rent. But rentals were hot in 2000 in the Washington, DC area and became too expensive for my budget, so I bought a tiny house whose mortgage I could afford.

Then my salary started climbing. In 2001, I found another job paying $88,000. In 2002, I jumped to another firm at $120,000. In 2004, another company recruited me at $140,000. In 2007, I went to another firm that paid $190,000.

Even though my salary kept rising, I continued to live modestly–not buying a car, electronic goods, fancy furnishings, or lots of clothes.

From 2002-2006, I tracked my spending meticulously, relishing in lowering my expenses as much as possible. In addition to maxing out my 401(k), I saved 50-60% of my take-home pay and plowed the savings into Vanguard stock index funds, divided among large cap, medium cap, small cap, emerging cap, international, REIT. And in 2005 when the real estate market got hot, I sold the house for a profit, plowed $170,000 into Vanguard funds, and moved into a cheap apartment.

By October 2007, my net worth reached $1,000,000—70% of it in taxable accounts. My annual expenses were under $35,000, so I quit my job and retired. But by the end of 2008, my net worth had plunged to $600,000 because of the market crash. However, I did not pull out one single cent from Vanguard or change anything in my IRAs. (emphasis mine, jlcollins)

In May 2009, a former boss recruited me back to full-time employment for $135,000 a year. I was still living in a modest apartment and maxing out my 401(k), but this time was saving only 40-50% take-home pay. Worse, I didn’t add the savings to my Vanguard taxable funds, but kept it in a high-interest checking account.

I started taking my eye off the ball.

One morning I woke up and decided to buy a waterfront house on the Chesapeake. Two months later in July 2012, I bought a $480,000 house with 25% down and a 10-year mortgage at 2.75%.

I went from paying $1,250 for a one-bedroom apartment with $25/month electric bill to paying $3,185 for a 3-bedroom, 2.5 bath house with $150/month electric bill–not to mention home & flood insurance, property tax, and quadrupled furnishings. But, “It’s my dream to live on the water!”

My savings rate plummeted.

In March 2013, I met your blog, learned that a house is a terrible investment (oops) and which Vanguard index funds to own. I slowly sold REIT, international, and emerging funds–the ones that didn’t make money; I didn’t sell the other funds because of tax implications. My net worth then was $1,200,000, thanks to the bull market.

I wasn’t psychologically ready to sell the house yet, but your blog put me back on track, so I aimed to retire in 2020 with $2,000,000 (or $1,500,000 if the market didn’t cooperate). The market cooperated big time. By Thanksgiving 2014, my net worth shot up to $1,575,000. I decided that it was enough to retire earlier than planned.

By Christmas 2014, I started getting the house ready for the spring 2015 market. In June 2015, I sold the house for $515,000 and quit my job. After paying off the loan and expenses, I had $200,000 in cash–40% went into VTI, and 60% went into Vanguard’s Prime Money Market Fund, waiting for a crash and buy more VTI. I’m still waiting!

With the house sale, I sold or donated all of my furniture and other furnishings, most of my clothes, and the 16-year-old car. The remaining things–1 small box of important papers/documents, 1 small box of miscellaneous items, and 4 office-sized boxes of clothes/shoes/boots–are stored in my mother’s spare bedroom closet.

In mid-July 2015, with 1 carry-on suitcase and 1 under-the-seat suitcase, I boarded the plane and headed for Europe for 3 months, booking VRBO apartments as I went.

So far it’s been 2 weeks in Paris, 1 week in Nice, 1 week in Venice, 9 days in Florence, 1 week in Cinque Terre, 9 days in Rome, and now 1 week in the Amalfi Coast.


Venice. As good a place as any to ditch stuff.

In Venice I ditched the carry-on suitcase and one useless skirt, and packed everything in the under-the-seat suitcase. In Florence I shipped 1/2 of my clothes back to Mom.

In Cinque Terre, I shipped more clothes back to Mom.

Later when I get back to Mom in Texas at Thanksgiving, I will transfer my travel belongings into a nylon 25-liter backpack (size of a day pack) and continue with my world travels–combining expensive and cheap locations to keep my yearly expenses under $40,000 (2.5% withdrawal rate).

Once briefly my net worth shot up to $1.700,000 but these days it hovers around $1,570,000. Nothing the market does bothers me. I use your withdrawal advice as a guide (thank you again!), and I try to understand Go Curry Cracker’s posts regarding tax strategies.

Thank you. You’ve given me knowledge, courage, and confidence. I have referred many people to your site.

When I quit work, some of my colleagues asked how I retired early, so I gave them a dumbed down PowerPoint presentation, which included links to your site’s various pages.

I tried to send them links only, but the twenty and thirty-somethings said they didn’t want to read – they just wanted to be shown. And since marketing was my profession, I gave them slides with lots of pictures and few words.

One woman my age said it was too late for her to start, because she and her husband were used to living from paycheck to paycheck. I told her to impart this information to her children instead.

As a single woman, I used to fear being homeless and destitute with no safety net. Today, with my F.U. money, I feel empowered and prefer to be homeless!

A year ago I had a waterfront house with enviable views, but it came with high costs–upkeep labor, maintenance expenses, taxes, insurances, utilities, etc.

Today, I’m enjoying a water view of the…


 …Amalfi Coast from the terrace of a house I’m renting.

It’s Sunday, and I’m not worrying about raking the leaves, mowing the lawn, or preparing for the work week ahead.

Hmmm, I guess I’ve written you a tome. I just want you to really know how much of a difference you’ve made, at least to one person’s life.

I’ve read every single post you’ve written, and some of them many times over. I’m always sad when you pause writing for the summer! Now that I have more time, I’ll try to participate in the comments.

Again, thank you!

Warmest regards,


In my reply I observed that she seemed to have done just fine before ever finding jlcollinsnh and said, “I love your story, the victories, challenges, set-backs and recoveries. With your permission, I’d like to make this into a case study post.”

After a few days, I received her reply:

Hi Mr. Collins,

I was without wifi for a couple of days. Finally it’s back and I can respond to you.

Thanks for your words of confidence. Actually, your blog did make a difference to me–it guided my decision to sell the house, even though I had just bought it, giving me “permission” (for lack of a better word) to cut my losses and put the equity to better use (buy stocks).

Most important, your words gave me confidence (and thus, peace of mind) about some of my past financial decisions (buying only index funds, using Vanguard, eschewing financial advisers–one guy I interviewed said his “fee” was 1% of his client’s investment portfolio!)

I think probably the only place we differed was that I never held any bond funds – it’s either stock funds or cash, and I intend to keep it that way even in retirement. Anyway, when it comes to financial matters, peace of mind is gold to me.

How I conducted my financial affairs was a culmination of gathered information from many sources over many years. I didn’t really know if I was doing it “right”…until you came along and wrote your stock series – now my financial bible, and I felt that your posts blessed my financial decisions up to then, except for the house buying mistake.

By the way, my favorite line of all your writings is this: “Avoid fiscally irresponsible people. Never marry one or otherwise give him access to your money.” I put that as bonus advice (and credited it to your blog) in my PowerPoint slides I give to others.

My ex-husband and I are still very good friends, and he now says that he’d never be able to afford the house he’s in now if it wasn’t for my income when we were married, and that if I had stayed married to him, I would not be as well off as I am now.

If you think my story could be of use to others, especially women, I would be happy to share it.

The idea of making my story public caused me to double-check my figures and years listed. I know how critical people can be.

Speaking of critical people…

Because I was writing for your eyes only, I didn’t think to mention that over the years, even when I was being super frugal, I’d always given thousands of dollars away every year – one year as high as $30,000 – to family, friends, and charity. I mention it now, because once the story goes public, some people will say they don’t want to be frugal if it means they have to be a Scrooge. My situation is proof that one can be generous to others and still do well for oneself.

However, I don’t want to list the money I gave away, because family and friends who received money will be wondering who got more than they did – people are funny that way. I don’t mind bragging privately to you, though, that sharing is my top value and I try to live up to it by being generous.

As for my current plans, after 2 years of travel, I intend to return to working on projects involving orphans and senior citizens in a developing country where I had done vacation-volunteer work before.

I mention this last part because a couple of friends were worried that I’d be idle and eating bon-bons for the rest of my life. I guess some people think that retiring young means a life of drifting uselessness.

Respectfully yours,


Well, MP… While I can imagine a lot, I can’t imagine you in a life of drifting uselessness. I am honored my site has helped. But it sure sounds like you’d have been just fine without it.

Ordinarily, I follow these case studies, with my advice. But in your case, no advice is needed. I’ll just say, “Well played!” and hope that somewhere out there our paths cross and we can linger over a coffee in some picturesque plaza.

BTW, last I heard, she’s here:



Addendum 1:

Want to track how close you are to your own personal financial freedom? An affiliate of this blog offers a great free tool: Personal Capital

Addendum 2:

In replying to a comment below, MP had the occasion to share her mother’s equally amazing tale…

My mother came to the USA at 30, widowed, with 3 young children 8 years old & under, an elderly mother, $250 ($50 per head given to us by the United States government), and no other assets.

She started work with minimum wage as a nurse’s aid. Our family was on welfare for 3 years, after which she was too proud to continue applying for federal assistance. I still remember the moment she made that decision.

We lived in the cheapest neighborhood in the city. My grandmother had a garden, producing so much vegetables we had to give some away. We never ate out or bought new clothes.

After 7 years of renting, my mother bought us a tiny 2-bedroom house for $5,000 (yes, five thousand dollars) in cash in the fall of 1982. That property had another house—a standalone studio apartment—that she rented out for something like $100 a month.

By then she worked in housekeeping at a nuclear plant. Even though she didn’t have even a first-grade education, her children went to college on scholarships/grants/loans. When the last of them went to university in a big city, she sold the property/houses (for $5,000) and moved to the big city too.

She rented a studio apartment and found work in housekeeping at a large department store, and then for the state government.

Eventually she bought (on mortgage) a property with 2 very modest houses—larger one to live in, smaller one to rent out. She got the landlord bug and bought a nicer house in the next town to rent out. Eventually, she sold the property with the 2 houses in the big city, moved into the nicer house in the next town and paid it off before she retired at 67 in 2012.

According to her Social Security reports, the most she’s ever earned in one year was $22,000+, and in the few lean years when she was laid off, she earned almost nothing.

And yet, she has accumulated hundreds of thousands of dollars (she won’t tell me exactly how much!), which she puts in a regular savings account. (She doesn’t believe in stocks, saying she doesn’t want to put money into what she doesn’t understand.)

Many times she has given loans to her 3 children—to help with mortgage down payments, etc., once as high as $120,000.

In retirement, she receives monthly Social Security checks and pensions, totaling more than her monthly wages before she retired. (Funny story—one of those pensions had to hunt her down to get her address because she had moved away; she didn’t know she had a pension!)

Even now, because she doesn’t spend all of her income (probably not even half of it), she continues to save toward her nest egg.

So, if a young widow—with 3 young children and an elderly mother, no education, limited English in a foreign country, working as a housekeeper, earning minimum wage (or less in lean years), doesn’t touch stocks or bonds—can achieve FI in 37 years, so can the average and below average American in a shorter time if they desire.

As the saying goes, FI is not so much about what you earn, but about what you save. And my mother is the perfect poster child for this saying.

Unrelated, but here’s what I’m currently or have just finished reading and enjoyed*:

How we came to be what we are, behave the way we do and believe what we believe. My favorite in this group.

Where people who live to be 100+ live, how they live and what they eat.

A novel: MacGiver gets stranded on Mars.

Why the future might be incredibly good. Unless the grey goo gets us.

*If you click on the books you’ll go to Amazon an affiliate partner and should you choose buy them, or anything else while you there, this blog will receive a small commission. This doesn’t affect what you pay.

Posted in Case Studies | 67 Responses

Hotel Living


I have always loved staying in hotels. Not all hotels all the time of course. But when they are done right I love just about everything about them. Business travel was always a regular feature of my working life and between that and our personal travels, over the years I’ve stayed in a lot of them. Often I sleep better in hotels, even now with my wonderful Tuft & Needle mattress.

My guess is this is because staying in hotels is so completely stress free. Strange expensive sounding noise? Not something I have to worry about fixing. Loud neighbors move in next door? A call to management gets results or a move to a new room, usually with a free upgrade. Violent storm outside? I can relax and enjoy the show.

Every now and again I’d come across a movie where some character or another actually lives in a hotel. This always seemed the height of sophistication as they prepared to sally forth on some grand adventure.

But it also seemed something unobtainable, the stuff of fantasy. Too expensive, for starters.

At one point early in my career I was traveling so much around the US I considered buying and living full time in an RV. But those are cumbersome, require upkeep and are not cheap. Plus the enabling technology of laptops and cell phones hadn’t been invented yet. Keeping my apartment and returning to it each weekend was just easier. And living in hotels felt out of reach.

I failed to challenge my assumptions and continued living in the conventional way.

A few years ago I came across the homeless billionaire:

Nicholas Bergguen

Nicolas Berggruen, the richest minimalist on the planet

Here was a guy living a life I’d dreamed about. He travels the world. He speaks three languages. His contacts are such that each day he has lunch and/or dinner with some intriguing acquaintance; be they a business associate, world leader, artist or author (maybe me if I ever get my book published!).

After living the typical billionaire life – owning multiple lavishly furnished homes, an art collection and a private island – he sold it all. He concluded:

“I am not that attached to material things. I have very few possessions…you don’t need much… a few papers, a couple of books, and a few shirts, jackets, sweaters.

“It fits in a little thing, in a paper bag, so it’s very easy.”

Everything he now owns fits in a suitcase or two: A couple of suits, some jeans and ­handmade shirts ­monogrammed with his initials that he then wears “until they fall apart.” My guess is, as the shirts wear, he demotes them to casual service with his jeans. Just like I used to do in my business days with my not-handmade dress shirts. It’s like we’re brothers.

Other than the Gulfstream IV private jet he kept to get from hotel to hotel and a couple billion dollars. Sadly, I am not a billionaire.

Still, here was a model of what my ideal life might look like if I were.

Again, I failed to challenge my assumptions and continued living in the conventional way.

But my mind was slowly being pried open.

In late August we returned from our summer of wandering around the midwest visiting old friends, exploring new spots and a delightful three week stretch at Shamba, the beach house on the shores of Lake Michigan in Wisconsin owned by my in-laws who graciously make it available to us.

JD Roth and me

We even had JD Roth and his lovely companion Kim join us for a few days.

It was our own experiment in hotel living homelessness.

We’d been in and had enjoyed our loft apartment for the last two years. We’d always wanted to live in a loft. High ceilings, brick walls, exposed ductwork: The whole chic industrial vibe. But when the lease expired, we were ready for a change.

Not only has renting proved to be far less expensive and far less hassle for us than owning our house, it provides far more flexibility. That’s one of the beauties of renting: It facilitates our restless spirits.

On June 30th the movers came, loaded up our worldly goods and packed them into storage. Homeless, we hit the road and gave them not a thought. Until August 24th, eight weeks later.

That morning the movers retrieved our stuff and delivered it to our new apartment where the furniture is now in roughly the right places and the boxes are stacked up in mostly the right rooms.

We certainly have far less now than when we owned the house and this move was much easier than the last. Plus as we settle in, still more stuff will be jettisoned making the next move easier still.

We are thrilled with our new place and the view out our 8th floor windows across the river to the setting sun is spectacular. But we are faced with the prospect of settling in.

As I wade thru and toss the accumulated junk mail, I reflect on our hotel living summer experience. It was pretty sweet. There are few hassles, everything is made up and ready when you check in, settling in is a breeze, and you stay as long as you like and move on without a second thought.

In trading emails with my pal Akaisha of Retire Early Lifestyle she wrote:

“If people knew how great it is to live in a place like one of the above — why own a home? Why own a car? I realize some people want their own places, their gardens, workshops, music rooms and pets and such… but these places are super and they are basically stress free.”

She is exactly right. Both on how great this life can be, and how completely unappealing it will be to many. That’s fine. Roots v. Wings.

But is it affordable? Well Akaisha and her husband Billy have found it so, and they’ve been doing it over 20 years.

Jeremy and Winnie of Go Curry Cracker have been on the move for the last few years, most recently in a furnished apartment in Taiwan for 18 months or so. Of course, they just had a baby and as you’d expect things are going to change for them. They’ll be back on the road soon and plan more frequent stops and shorter stays at each. They spend no more each month than we do.

Meanwhile, the Mad Fientist is out wandering the world implementing his 3-6-3 plan.

And here’s what I wish I had read back when I was doing all that business travel on the company dime: Save Money Living in Hotels (Even though author Plibby very likely wasn’t born yet)

What I’m beginning to understand is that, as Plibby explains, so many costs fall away when you jettison most of your possessions what looks expensive ($100 per night over a month is $3000 after all) isn’t quite that bad.

Several modern things enable this. The key ones it seems to me are:

1. Laptops. Never before has it been easier to be location independent and yet connected.

2. Cell Phones. Same as with laptops. And if you choose right, incredibly inexpensive.

Here’s an example. Our daughter is in South East Asia with the Peace Corp. We talk on the phone often. Mostly it is as clear as if she’s in the room with us. Her monthly charge: $5. I pay $10.

Her $5 a month buys unlimited phone, text and data; provided she has wifi. With wifi she can call any US based phone number from anywhere in the world.

My $10 a month gives me that and a seamless transfer to cell service when wifi isn’t available. When we were on the road, I stepped it up to the $25 plan for 3G and GPS. Now back, I dropped it down again. I can change like this twice a month. And (with wifi) I can receive her call anywhere in the world even if I’m in, say, Ecuador.

For someone old enough to remember when international long distance cost $10 a minute, this remains a little stunning. For more, here’s my post on Republic Wireless.

3. Rewards programs. Our longest stay at any one hotel this trip was 10 days. It was free. We used rewards points from various credit card, airline and hotel rewards programs. (Don’t ask me which, Mrs. jlcollinsnh is the brains in this outfit) Of course our biggest annual expense, rent, gets paid by check and earns no (horror!) points. But if instead of rent, we had only hotel bills each charged to our current favorite rewards card, imagine the points. And the free nights!

Still, my guess is hotel living would prove more expensive. Since I obsessively track costs and spending, after a year or two I’ll know for sure. (YNAB has great tools for this and is maybe The Best Place to Work Ever. Plus since employees there are location independent, you can live in hotels!)

If it proves too expensive, or should we just get bored with it, change is as easy as checking out.

For now, we’ll continue unpacking and settling in to the new place. But a year, or two, passes quickly. As I look around at our stuff, we’ve mostly pared it down to only those things we really enjoy having around. Still, never once in all my travels have I ever missed any of it. Or even thought about it.



Posted in Homeownership, Life, Travels | 43 Responses

Mr. Market’s Wild Ride


Bad Market!

Bad, bad, bad Market!

Can’t I even go on a little vacation without you tearing up the place while I’m gone?

I turn my back for one second (well, OK, maybe two months) and you start sliding?

And then that 1000 point drop? What’s up with that? Yes, yes, I know. It was only about 5% and not anywhere near your worst behavior. But still. You knew full well that 1000 figure would drive the pundits bananas!

Since I’ve been gone, you’ve managed an ~11% decline from your record close back in May. Just over the 10% needed to be called a correction. Happy now?

At least you’ve given the media something to obsess about other than Donald’s latest remark or Hillary’s email server.

And now I’m back and you’re up ~2%?* You think this makes the mess you left me OK??

I’ve got readers asking what my take on your bad behavior is, and I’m still just moved in to the new place yesterday and haven’t even begun to unpack. Bad Market!

OK. Here’s my take:


Yawn by Uzlo


Wake me up when it’s down 25%+ and it’s worth doing a little rebalancing to buy more stock

I have no idea what the market is going to do next. Nobody does. Not even (especially not!) those “experts” popping up all over telling you they do. The principles of Investing in a Raging Bull apply equally to investing in a Raging Bear.

As we’ve discussed through the Stock Series, Mr. Market always does the right thing over time. But he’s a drama queen and an attention whore. Periodically he’s going to have these hissy fits. And as with any temper-tantrum throwing little monster, we can just ignore him till he settles back down. No matter how long and loud he wails, settle back down he ultimately will.

Or, we can take advantage of him.

If you are in the Wealth Building Stage we introduced in Part VI and talk about throughout the Stock Series, you are already aggressively saving and investing on your path to financial freedom. Your regular investments, which hopefully you have automated, will have you buying on these pull backs. Anyone in this Stage should be rooting for corrections. You’ll be taking advantage automatically.

If you are in the Wealth Preservation Stage you can take advantage simply by rebalancing your portfolio. But I wouldn’t bother unless we get more of a pull-back.

Personally, that’s what I’m rooting for: A nice fat plunge.

I’ve always regretted not taking advantage of the crash in 2008 to move to all stocks. I’ve never really liked holding bonds all that much and in these days of low interest rates I see them as pretty risky. I’ve kept them for three reasons:

  1. They smooth the volatile ride of stocks.
  2. They provide a pool of money to draw on to buy stocks on market dips.
  3. They provide interest income.

My pal Go Curry Cracker has a plan to unwind his bond postion and move into 100% stocks which I rather like and might well follow:

“If a 25% drop happens, then I’ll move 1/2 of our bond position into VTI**. If the market drops another 25%, I’ll move the other 1/2”

**VTI is the ETF version of VTSAX, both hold the Vanguard Total Stock Market Index portfolio.

How would this effect my three points above?

1. The volatility of the stock market really doesn’t bother me anymore. Those who’ve read my Stock Series won’t be surprised at this. Partially this is attitude, partially that I’ve been thru enough plunges not to be fazed and largely because even a major crash would have little effect our lifestyle.

We live well below our means and are flexible in our spending. Plus the prospect of geographic arbitrage (moving to a less expensive part of the world) would be an adventure rather than a hardship.

2. While this pool would be gone, it would be gone buying stocks at a 25-50% price discount. Mission Accomplished.

3. VBTLX is currently paying 2.46% interest. So I’m not giving up all that much income.

So, come on Mr. Market. Show me what ya got!

Meanwhile I’ve got boxes to unpack and pictures to hang.

*Oh, so now just to spite me, you’re going to close down today 1.35%? So that how it’s gonna be…

Addendum 1:

If after reading this you are still agonizing over the drop in your holdings, think of it this way. Last I checked Warren Buffett was worth ~72 Billion. So in this 10% correction he has “lost” $7,200,000,000.00

I’d still trade net worths with him.

Addendum II: Or get yourself some Exposure Therapy

Addendum III: Or take solace in the fact you can be the worst market timer ever and still make money. (Thanks to Elephant Eater in the comments below for this link)

Addendum IV: From just about a year ago… Nightmare on Wall Street

Posted in Uncategorized | 83 Responses

Gone for Summer, an important note on comments and random cool stuff that caught my eye

Beach St. John's

Courtesy of Noelle Hancock

(more from Noelle at the end)

The time to disappear for our summer travels has come. Happy Time! But it will get quiet here around the blog. So…

This important note about the comments:

From now until September I will be unable to answer your investing questions in the comments. So please don’t post them now. If you do, you might miss the answer by the time I get to it come September. In the meantime, you might consider continuing to read the posts and the comments already there. The chances are very good that your question has already been asked and answered. If not, post them come Fall and I’ll do my best to help.

Other comments are welcome as always!

Our Summer

It has been busy like hell these past few weeks.

June 30th we are moving and so have been going thru the packing and purging leading up to when the truck arrives to haul away our, hopefully fewer, things.

Regular readers will remember we sold our house a couple of years ago and moved into our current downtown loft apartment. It is in a 200 year old refurbished mill building. Brick walls, high ceilings, wood floors, exposed heating ducts. A very casual, industrial vibe we’ve enjoyed greatly. It even has a bonus room in a former staircase that fits my office needs perfectly.

But one of the reasons we love now being renters is, it is far easier to indulge our restless spirits. It’s time for a change and change is easy when all you have to do is let your lease run out, pack and hire movers. Plus the purging inherent in moving keeps the clutter from trapping you.

We are going to a building only a couple of blocks away, so we get to keep the same neighborhood. We’ll still be walking distance to the cafes, restaurants and theater we’ve come to enjoy but in a more upscale, elegant apartment. We’ll be on the 8th floor facing West with a river view. We are told the sunsets are spectacular.

This is actually the building we first had our eye on two years ago. At the time we needed more space but now the second bedroom, we kept mostly for our daughter’s visits, can become the office.

She, in turn, is headed for South East Asia for two years with the Peace Corps. She’ll be teaching English. Since the Peace Corps strongly discourages volunteers from leaving their host countries to travel home, we will be traveling there instead. New adventures!

To make matters more interesting, the apartment we want isn’t actually available until August 24th. Which, since we travel for the summers, works out rather well. Specifically, like this:


Jake indulging in one of his favorite hobbies

  • June 29th I take Jake the Wonder Dog to stay with his pal Smitty in the New Hampshire countryside. Jake doesn’t like moving days or hotels.
  • June 30th the movers load up our stuff and take it to storage.
  • Meanwhile, our daughter gives away the last of her stuff and leaves her apartment in Massachusetts.
  • We meet up here:


Wentworth by the Sea

This is one of the grand old hotels scattered around New England that were built at the turn of the last century. They fell into disrepair but now most have been beautifully restored and refurbished. Not cheap, but we had been meaning to treat ourselves one day anyway. And we have almost two months of rent to play with!

  • July 3rd we put our daughter on the plane to LA and exotic points beyond for the next phase of her life’s adventure.
  • That same day we retrieve Jake and head west to Wisconsin and Shamba.
  • We’ll spend the rest of July at Shamba on Lake Michigan as we did last summer.
  • From August 1st to the 24th we’ll…
  • …well we haven’t figured that part out just yet. :)
  • August 24th we move into the new place, where we should be fully settled by October when…
  • …I head back to Ecuador for the Chautauquas and the side trip to the Galapagos Islands.

While at Shamba I hope to finish the final rewrites and polishing on the book. The manuscript is currently out to readers and fact checkers, and with their input in hand I should finally have it done. Of course, there are many more steps between finished manuscript and published book. But it is getting there and should be out in the next few months. I’ll put up a post when it is.

So have a wonderful summer and to get started, here for your amusement and edification are some random cool things that have caught my eye of late:

Socially Responsible Investing This is a question that regularly comes up in the comments here and the link is my pal Darrow’s interesting take.

barvarian castle

“I want to go there”


Lonely Houses

cabins abandoned-waiting-for-owners-to-come-5

Abandoned cabins

Body switch magic


Dave Barry reviews Fifty Shades of Grey: Best book report ever!

Bridge between walls

Mysterious Bridges

Understanding the economy video, by Ray Dalio

Pushing the lions off their kill Awesome demonstration of what courage can do. It’s amazing the lions don’t think, “Oh look. More meat. And it’s coming right to us. Gotta love the service on this savanna!”

How many mutual funds routinely rout the market?

50 reasons we are living thru the greatest period in history

Milky-Way what we can see

Where are our interstellar neighbors?

AI — If you’re going to be interested in this, you already know what “AI” is.

A History of Time


“If you’re constantly thinking you need a vacation, maybe what you really need is a new life”

Why I gave up a $95,000 job to move to an island and scoop ice cream

Hand Stand

Courtesy of Noelle Hancock

See you in the Fall!

Posted in Random cool things that catch my eye | 27 Responses

Around the world with an Aussie Biker


The motorbike I found parked in my Guatemalan hotel lobby; here in the Moroccan desert

In March 2014 I was spending the month in Antigua, Guatemala, where they will kill you for your shoes. Or maybe not.

One day I returned to my hotel to find a motorcycle parked in the lobby sporting an Australian license plate. A quick inquiry to my landlady, who was by this time also my friend, and I was pounding on the poor fellow’s door. Regular readers know I have a motorbike and so I wasn’t about to let this opportunity pass.

That evening I dragged him out to dinner at Sobremesa owned and operated by my then new pal Alex. In addition to being a restauranteur, Alex is an artist and I’ve featured his work in my posts here, here and here. He is also a novelist with several books to his credit, but that’s another story.

Turns out Dave was just about a year and a half into a 3-year round the world motorcycle ride. Over a fabulous meal he shared a few of his stories and, when things slowed down, Alex joined us and over drinks we closed up the joint.

Somehow we missed each other before his departure, but not before exchanging emails and my learning that his travels would put him in New Hampshire around September. Of course I invited him to visit and offered to show him some of our better local roads.

A day or two later he sent me this email:

March 16, 2014


Had hoped to catch up before I left, but us ‘loners’ are hard to pin down. The fates willing, it would be good to catch up around September. I’ll stay in touch.


As promised, come September he reached out again and we shared a number of emails leading up to his visit. In ( ) I’ve added some explanations for clarity:

September 11, 2014


It’s September and I am now in Newport, Rhode Island for a couple of days, visiting the annual boat show. I will then head down to NY and meander up the Hudson River. I also have a couple of other rides flagged in the region. If you wish to catch up and talk travel/boats, let me know.

I hope life is treating you well.


The boat show attracted him because, after wrapping up the motorcycle journey in Indonesia, he plans to build a boat and spend a few years sailing around the world.

September 15, 2014


Good to hear from you. I am currently headed for Saratoga Springs, and will then swing West to see Niagara Falls. Then it’s further West to Milwaukee, to see the HD (Harley Davidson) factory/museum. There are also some good rides in the region. So, I can swing back your way later in the month – by which time hopefully there will be some Autumn colours (might be wishful thinking though!)

I am due to fly the motorcycle and myself out of Montreal on 12 October, so I can, head for Canada after catching up with yourself.

I will stay in touch and let you know of my progress and expected ETA.


September 28, 2014

Hi James! Hope you are well.

I am currently near Watkins Glen to check out the (Finger Lakes in NY State) lakes, and will be headed your way in a few days. Thought I’d get your address, to better plan my approach. Will you be around next week?


PS: The Fall colours are well on the way!

September 29, 2014


Am currently at Williamstown (truly the quintessential American movie set town – quite beautiful) taking the long way round via Rutland. Could be there tomorrow, but let’s say Wednesday – I will be seeking out a new front tyre as I make my way there.

I hope this is convenient


Once Dave made it to our place we had a great time for 3 or 4 days before he had to move on. It was mostly off the bike as he enjoyed a break from the ride. On his final day I rode about half way up thru NH with him toward his final destination that night.


Dave and me just outside Naughty Nellie’s Cafe where we last parted company

We next heard from him just before Christmas….

December 23, 2014


Have a MERRY XMAS and a great 2015!

I am currently wintering in the Western Sahara/Morocco, however there has been a slight change of plan.


The view from my hotel in the Moroccan desert

But first, since last I wrote, I have travelled far. All went very smoothly getting me and the bike to Portugal, and I landed in a very wet and heavily flooded Lisbon. However, the couple of hours spent clearing the bike had me on the road again in the dry and headed North up the coast.

There were only a couple highlights running the coast, and the weather remained indifferent. However, when I went inland, things improved dramatically. Absolutely loved Portugal and Spain once on the minor roads and off the beaten tourist path – prices fell appreciably too!

Had a great three weeks of sunny dry weather as I explored the villages and towns – and what a rich history they have!

Fabulous old walled cities and majestic buildings, wonderful narrow cobbled streets and stunning engineered structures (aqueducts etc) – ‘I’ll be back’.And so into the magical/mystical Morocco. Not much of a transition early – a change in language (French/Arabic), food, currency……and they all tend to run around in their hospital nightie’s (but not with their bums hanging out) – and that’s about it. Oh, and prices are down.


The pool….every Bedouin has one, don’t they?

Landed in Tangier, and immediately headed South for warmer/drier climes. (I am told Tangier is Tourist Central, with all the cruise ships bringing in the sheep for fleecing).

There was a bit of rain about in the North, so headed for Chefchaouen, then onto Fez. Chefs’ Medina  is wonderful (a composite of very narrow streets wending and winding their way up and down the side of a steep hill. The whitewash blue colours they paint the walls with looks sublime at times – hard to describe (no photos). It is a tourist ‘hot spot’ though!

Then it was across the Atlas Mountains to the desert – my favourite place.

Spent time in the Sahara – did a camel trip into the desert to stay at a bivouac (I had the place to myself – great!) then a 4WD trip around the oasis areas. Touristy stuff, but fun. The ‘real’ Morocco begins after Fes, heading down toward Errachidia and Erfoud (as I remember it – in 1977 – but times change!).

‘Progress’ has taken it’s toll over that time, with small villages now towns and cities – and not always attractive. Again ran the great mountain passes of the mighty Atlas Mountains, at times above the snow line, and across to Marrakech. Spent several days here – enjoyable but all too frenetic and it does wear you down. Too much hard-sell. Must be getting too old and cynical to fully enjoy it, and was pleased to move on South and toward the coast.

The state of the roads has made it a bigger adventure with mud/rock slides, ‘creek’ and puddle crossings (nothing your Scrambler wouldn’t handle though!) and bits of roads simply vanished into ravines/rivers – NOTHING handled that!

Then it was into the Western Sahara, where I spent a few days in a rather nice little coastal town called Dakhla. Thought it would be just a fishing village, but is a very modern, civilised place. The ride onto the peninsula was spectacular, with quite a surreal landscape. This is real desert country, with the landscape covered in a haze of wind-blown sand and having to occasionally dodge and weave sand dunes encroaching on the road.

The REAL Morocco – love it down here!! Temps down this way are VERY pleasant, up around the mid-20’s (centigrade). Seem to have left the ☁️⚡️☔️ behind too. Really nice riding weather (but windy).

The only bugaboo is running the checkpoints. Had six checks one day: four within five kilometres; and two within eyesight (150 metres) of one another! – a military check followed by a police check, both recording the same info!! Go figure? The good point is they are all super friendly and want to chat (they all tend to speak a bit of English).

There is a heavy military presence, and I have even seen UN peacekeeping (?) vehicles. Big white 4WD’s, of course! – more money that could be better be spent elsewhere, being pissed up against the bureaucratic wall.

I am now settled into a really nice beachfront hotel just South of the Megopolis 😉 of Tan Tan for the Xmas/new Year period. It’s a quiet little town – probably only a couple of thousand people, if you count the 🐪🐫 and 🐐. Be nice to have a quiet time before heading to the Big Smoke (Casablanca) early in the New Year to organise …….my return to Australia!

And so for the change of plan…

Just recently, a young lady friend has asked me to return to Oz for a while to do the Kokoda Trail Trek in PNG (Papua New Guinea) with her! Says it’s IMPORTANT to her – but she is not keen to venture off alone, and her mum understandably is not keen either – and I’m the only one she knows who would be interested/could physically do it! (remains to be seen 😳).

I will leave the motorcycle in Morocco (The Missus I believe has to be stored at a Customs warehouse while I’m out of the country – more paper work) and fly to Australia on 6 February (before my current visa runs out) and return late April (29th at present) – the bike has a 6-month entry, ending 13 May, so good timing.

The Kokoda has been on my Bucket List back-burner for some time now (and I’ve never been to PNG), so it would be a good opportunity to tackle it. Another (obvious) motivator is that at my age, I don’t get too many offers to go adventuring with a lovely young woman these days!

Also, truth being, there is also a LOT I can better arrange in Oz for my onward travels back into Europe and beyond (carnet, green card insurance etc). Also breaks up my time in Morocco, which I was thinking might get boring after a few months, and puts me back into Europe in more favourable weather in early-May.

Another ‘plus’ is if I follow the most favourable global weather pattern, it will extend my travels to mid-2016, rather than June next year – and I have been looking for reason not to go ‘home’ – something which even now looms large! The longer I’m out here, the less appealing THAT prospect appears.

Several more months in Europe/Turkey and SE Asia holds a lot more interest! 😊 Inshallah! (God willing)

So, I hope you both have an Xcellent XMAS and NEW YEAR 🎉🍸🎊, and have a 🍷or 🍷🍷 for me. (We did!)

PS: Just when I thought I had this international motorcycle adventure travel beat – 85,000km in and unstoppable, having conquered mountains, jungle, deserts, and terrorists/assassins disguised as motorists, I met the insurmountable – the one thing that brought fear to my heart……the squat toilet! O…M…G!!! The agony and the ecstasy. 😬

I do exaggerate a little tho’ – I have yet to use one (except for a pee) and it is the prospect that has my knees shaking. It’s been a long time between squats! 😩

PSS: James, I hope you have plans for more travel to exotic places in the New Year. Whatever you do, travel safely both of you.

Part II

A few days ago it occurred to me I hadn’t heard from Dave in awhile and so I sent him a note, which produced this reply…

June 21, 2015

James, great to hear from you!

Sounds like you have your hands full with the move and finalising your book! I hope all goes smoothly. Your daughter’s ‘posting’ (to South East Asia) sounds like a wonderful experience, but I’m sure you have a parents’ trepidations!

I think I indicated I was heading back to Oz (Australia) to join a friend on the Kokoda Trail trek in PNG. Completed that (managed to hobble my way through after twisting my knee in training/preparation for the event!). Am still trying to recover from the injury 3 months on – but it only hurts when I WALK – perfectly fine while riding, thank goodness!!

Returned to Morocco on 2 May and picked the bike up from Customs (a five minute job) and back on the road into the desert once more.

After crossing from Morocco, I went up through Spain into the mountains, dropped in to Andorra (heavens know why – little to recommend it. Yuppysville in ski boots!)

Then spent a week with friends in France. Hadn’t caught up in 21 years, so it was great to touch base.

French farmhouse

Their house. His wife resurrected it from an old farmhouse. The real estate values in this region make you cry. The population in this area continues to decline, and real estate values plummet along with.


The fairytale continues

From there into Switzerland to stay with a fellow rider (KTM 650) I met in Colombia/Panama. A lovely lady.

Then thru Lichtenstein into Austria and on to Germany, where I rode the ‘Romantic Route’ – a series of beautiful medieval towns over about 450kms up through central Germany as far North as Nuremberg. If you must visit just one medieval town- make it Rothenburg ob der Tauber – simply stunning!! (as all the tourists attest/verify!)


Prague. Claimed to be the most beautiful city in the world – no argument from me! (Or me!)

I then was at a loss to do with myself – but they say Prague in the CZ (Czech Republic) the most beautiful city in the world – and so it proved. Stayed a few days and went all cultural, taking in Swan Lake and two classical strings recitals – the last being in a medieval cathedral and backed by the organ!

Then on to Vienna – which didn’t do it for me this time round. Too much traffic, noise and glass high rise. Progress has eroded the character. Then, maybe I just didn’t find that ‘special’ town square or plaza. Moved on and stayed in a lovely little village called Krems, at a lovely old hotel that has clung to the best of ‘old fashioned’ – but no WiFi!!


But Cesky Kumlov in the CZ might just be the most beautiful village

Had a brilliant ride along the Danube and then back into CZ to look at another ancient town which gets great wraps – Cesky Krumlov – and no wonder. Just beautiful. Perfect hideaway for a dirty/romantic weekend! Then back into Germany to Munich to get culture of a different kind – the BMW museum!


A typical Austrian/Tyrol village

Am now in the Austrian Alps to do the Stelvio Pass in Italy (top of the bucket list) and several other alpine rides: then it’s a quick spin around Lake Geneva in Switzerland (a VERY X-pensive country to travel); a flit into France to check out Niece and Monaco; then off to Italy to run the west coast (might ship over to Corsica/Sardinia while I’m in the area) down to Sicily and round to Brindisi to ferry across to Greece. I have around one month before their holiday season begins and the hordes descend – so I better motor!

Auf wiedersehen.

jlcollinsnh again:

One of the many things I love about travel is the interesting people you meet. People who just go ahead and pursue their dreams while others smugly claim it can’t be done.

Of course, your dream doesn’t have to be about travel. It’s yours and it can be anything you chose. Just be sure you are actually choosing, and not just going along with some predestined flow.

This blog is, mostly, about money and investing it. But in the bigger sense, it is about freedom.

Dave is in his fifties. Over that dinner he made an interesting observation. His intention with this motorbike trip and the coming sailing voyage around the world was to burn thru all his savings and die broke. It’s not working out.

Seems since hitting the road and after covering all his expenses, his net worth keeps growing. Poor guy!

Living a life of adventure, it turns out, is a whole lot cheaper than owning a McMansion and keeping up payments on an Escalade (starting at $72,970!) or two.



For those who asked about financial details and other questions Dave emailed me to politely decline engaging in the comments here, saying “….don’t want to get too tied into a lot of on-going correspondence.

“Truth is, most CAN afford to do what I do, it really comes down to the WANT, as to how we channel/allocate our resources. Money is not the limitation, the desire and conviction to put yourself out there is the limiter – and money does not buy that (but it’s a nice ‘holding deposit’ underpinning!).

“In my case, I find it is not courage that drives me, but rather FEAR – the fear that time is running out, and I may not get to realise my dreams!

“Am currently in Switzerland, having ridden the sox off the Tirol! Many great roads and stunning scenery all the way. This is biking nirvana, and there are more motorbikes than grasshoppers in a locust plague! And push biking is just as popular – people of all ages out there tackling mountains while the weather lasts!

“However, the Grey Nomads predominate, both on push bikes, and more notably on motorcycles! There are a lot of ‘oldies’ out there making the most of the time they have left. Inspiring!

“Ciao for now.”


Meanwhile and unrelated, recently…


I was interviewed for the Create My Independence Podcast: F-you Money, Stepping Away, Fear and Investing. It was fun to do and I hope you find it fun to listen to.

And, if that’s not enough, check out my As Seen On… page.

New Book:  

My pal Matt Becker of Mom & Dad Money just put out his new book: The New Parents’ Guide to Financial Independence

If his name and website sound familiar to you, it might be because I have had the occasion to link to some of his past posts to amplify a point in one of mine or to introduce concepts I thought valuable to the readers here.

If you want to read all about it, just click on the first link. If you just want to cut to the chase and order it, click on the second. It’s worth your time.

Posted in Cars and motorcycles, Travels | 25 Responses

Case Study #13: The Power of Flexibility

Gordian Knot Golden HD

The Stock Series here is designed to slice thru the Gordian Knot of investing. To debunk the idea that investing is too complex for mere mortals and to dispel the fear surrounding it and our financial security.

Routinely, I hear from people who lament

  • “I’m 32. If only I’d discovered your blog when I was 22.”
  • “I’m 42. If only I’d discovered your blog when I was 32.”
  • “I’m 52. If only I’d discovered your blog when I was 42.”
  • “I’m 62. If only I’d discovered your blog when I was 52.”

Certainly the earlier you start, the better. The magic of compounding takes time to blossom. But is also amazing what can be accomplished with focused effort in only five or ten years.

That said, financial independence is every bit as much about controlling your needs as it is about accumulating assets. If you can live on $20,000 per year, having $1,000,000 makes you very rich indeed. Using the 4% rule, your needs are only half of the $40,000 your investments could provide. If you need $80,000 you are in serious trouble.

Most of the scary scenarios in the major media are centered around the idea that people have no flexibility in their spending. If that’s true for you, you have a bigger hill to climb. You are engaging only one half of our *accumulating assets/controlling needs* package.

In today’s Case Study, we are going to visit with Arnold, a 65-year-old man unemployed for the last 10 months. He is concerned about finding a job to meet his expenses.

After a lifetime of work, he has $73,000 to his name. He attributes this to having “…squandered money on cars, travel, eating out, girlfriends, clothes, motorcycles, businesses, high interest credit card debts etc. without giving much consideration to the financial consequences of my actions.”

He implores, “…please, younger people, don’t make the same mistake as I did…” in living the lavish lifestyle now gone.

Given my emphasis on the importance of accumulating F-You Money, you might expect this Case Study to be a cautionary tale. Certainly it would be in the major media: Another unfortunate who fell through the cracks.

But this discounts the “controlling needs” side of our equation. As I say at the end of this post:

“True financial security, and enjoying the full potential of your wealth, can only be found in this flexibility.”

Clearly, had he lived a bit less large and invested according to the principles we discuss here, he’d be better able to continue his former lifestyle. But I think there is a bigger and more important lesson to be learned:


The Power of Flexibility

Arnold writes…


I’m so pleased I found your blog. Thank you for the wonderful service you provide to so many people all over the world and your excellent advice!

I hope you don’t mind guiding me as well.

I am 65 years of age, in an informal domestic partnership relationship with a lovely lady, and recently “semi-retired”. I have $40,000 sitting in a zero interest money market account at Bank of America and two work-related 401(k) plans worth about $18,000. I also have about $15,000 in cash stored in a safe.

At this time, I have no income and for the past 10 months, have been drawing money from my savings to live. Fortunately, I am pursuing a frugal lifestyle and my living expenses are at about $800 per month – I can possibly trim it down another hundred or two a month. I will soon have to start working again part time to fund my living expenses.

Needless to say, I have so many regrets that I did not save and invest in my youth and during my adult working life and plan for my retirement. I squandered money on cars, travel, eating out, girlfriends, clothes, motorcycles, businesses, high interest credit card debts etc. without giving much consideration to the financial consequences of my actions.

The end result of these actions is that I now will have to rely on social security to sustain me for the remainder of my life. Who knows what will happen or where I will land up when I become too old to take care of myself.

Jim, would you mind if I interjected a brief word of caution at this stage to the younger people reading your blog – please, younger people, don’t make the same mistake as I did…don’t…

I am not yet receiving social security -I am trying to delay claiming it for another 5 years until I’m 70, at which time my payout will be the highest, about $1700 – $1800 a month.

The money I have in the bank, the two 401(k)s and the cash in the safe is ALL I have. During the recent recession, I turned a blind eye to the concept of investing any money into mutual funds or stocks, as I had a fear of losing it all, as many others did.

Truthfully, I really didn’t understand investing, the stock market and mutual funds – I still don’t, but I’m doing a bit better now and am learning more and more each day, especially from your blog.

I am fully aware that my money in the bank is losing at least 3% of it’s value every year as a result of inflation whilst at the same time, I am deriving no income from it whatsoever.

I have read your posts in which you strongly recommend to people that they invest their funds into Vanguard VTSAX and you are not the only person making this suggestion.

In an ideal world, and I emphasize IDEAL, I would like to invest the $40,000 into a fund that will generate an income of $800 per month to cover my income for the next 5 years till I’m 70, without any depletion of the principal. I would then turn down the heat so to speak, to a safer allocation of funds at percentages that would allow me to sleep at night….That would be the ideal, but I presume it’s not going to happen in the present financial climate and that I’m going to have to work part time to supplement my income – like it or not- or alternatively claim social security sooner.

After all of that, my questions are:

Is your recommendation to invest into Vanguard VTSAX geared more towards younger folks who still have years of investing time ahead of them, or does it apply equally to someone such as myself who has already reached retirement age?

If it applies to me, could you please suggest whether I should invest the full $40,000 into Vanguard VTSAX?

Alternatively, do you have another suggestion as to an investment into another kind of Vanguard fund that will produce a better monthly dividend?

Thank you very much in advance and I will look forward to your reply!


My reply:

Welcome Arnold…

…and thanks for the kind words.

Instead of directly answering your questions, let me give you three paths to consider. But before we get into that, let’s take stock of your situation.

We’ll get the bad news out of the way first:

There is no investment that can reliably return $800 a month ($9600 per year/24%) on $40,000. If we use the 4% withdrawal rule, generating $9600 a year would take $240,000.

This rule comes from an analysis of the Trinity Study and has become a popular benchmark for what can be considered a safe withdrawal rate. That is, a rate that allows for a portfolio to survive at least 30 years of inflation adjusted withdrawals.

That said, here’s the good news:

  • You only need $800 a month and we can make that income happen pretty easily.
  • You indicate that you could trim another $100-$200 from that, indicating some very serious flexibility.
  • Flexibility in spending is at least as important as assets on hand. I salute you!
  • You have $73,000 in investable assets: $40,000 in the money market, $18,000 in your old 401(k) and $15,000 in cash.
  • At age 65 you are only one year away from your full retirement age of 66.
  • If your Social Security benefit will be $1700 at age 70, it will be about 75% of that at age 66: ~$1275 per month.
  • The break even for delaying Social Security until age 70 is ~83 years old. Unless you are pretty sure you’ll live past 83, taking it at 66 might be the better choice. Of course if you plan to marry your lady and your benefit would be greater than hers, she could take it over upon your death. That would make waiting on your Social Security an advantage for her.

With those tools in hand, we have three very interesting options.


Path 1: Draw on your savings and delay Social Security until age 70.

Roll your $73,000 into the Vanguard Balanced Index Fund, VBIAX. This is a balanced fund that holds 60% stocks/40% bonds, has a low ER of .09% and a dividend of 1.87%. It is less volatile than VTSAX (which holds 100% in stocks), and it will offer more growth potential than the cash you currently hold, giving you the the chance to keep pace with inflation.

Once it is there, instruct Vanguard to sell enough shares each month to transfer $800 to your bank account for your spending needs. I’d also have them send the dividend to your bank. At $73,000 x 1.87% that’s $1365 a year, paid out quarterly. I’d use this for extra “free” spending. (If you call Vanguard they will walk you thru getting this all set up.)

Looking at the math, we can see that drawing down $800 a month, $73,000 will last for 91 months or 7 1/2 years. (73,000/800=91)

Of course, the market will fluctuate over that time. If it moves in your favor, your money will last even longer. If it moves against you, your money should still last thru the five years until you reach age 70.

If it’s a disaster, you’d just have to go on SS a bit earlier. As we’ve seen, this would mean monthly checks ranging from ~$1275 to ~$1700-1800 at 70. Since you only need $800, you’d be golden even then.

Once you reach age 70 and start taking Social Security, you’ll  no longer need to draw on your VBIAX fund. You can just leave it to grow or continue to spend the money, but now as extra. It depends on whether you want to leave money to any heirs. If you do, you might also consider switching to the more aggressive 100% stock VTSAX at that point for better growth potential.

Path 2: Take Social Security starting at age 66.

As we calculated above, at age 66 your benefit should be ~$1275, very comfortably over your needed $800. Taking Social Security at age 66, you can either enjoy an expanded lifestyle with the extra $475 or invest it.

Your $73,000 you can invest in VBIAX and either let it grow, or draw it down as above to have still more to spend. This would give you a monthly income of $2075. ($800 + $1275 = $2075)

If you plan to leave it untouched for your heirs, you might consider the more aggressive VTSAX for more growth.

Please understand that both VBIAX and VTSAX will be volatile. You have to be prepared to ignore the inevitable periodic market plunges and stay the course for either of these plans to work. If you are used to holding cash this can be very unsettling.

If it is too unsettling, consider…

Path 3: Keep your money in cash, but otherwise implement Plans 1 or 2.

In the Path 3/1 scenario you’d skip investing in VBIAX and continue to hold your cash. Then you’d draw down on it at $800 a month. As we’ve seen, the money would last 91 months/7.5 years. This takes you comfortably to age 70 and the highest Social Security payout.

In the Path 3/2 scenario you’d start drawing your Social Security at age 66 and just hold the cash as you have been doing.

Of course, as you observed, holding cash means watching it erode at ~3% a year to inflation and giving up the chance for growth. For this reason, Path 3 is my least favorite.

Regardless of which path you choose, the truth is you are in excellent shape due to your modest needs of $800 a month, coming Social Security and $73,000.

Hope this helps, and enjoy your journey!

PS: This is a post you might enjoy — What it looks like when everything financial goes wrong

Addendum 1: This post is an expansion of my original reply to Arnold in the comments. If you are curious, you can read that conversation here.


Meanwhile and unrelated, recently…


I was interviewed for the Create My Independence Podcast: F-you Money, Stepping Away, Fear and Investing. It was fun to do and I hope you find it fun to listen to.

And, if that’s not enough, check out my As Seen On… page.

New Book:  

My pal Matt Becker of Mom & Dad Money just put out his new book: The New Parents’ Guide to Financial Independence

If his name and website sound familiar to you, it might be because I have had the occasion to link to some of his past posts to amplify a point in one of mine or to introduce concepts I thought valuable to the readers here.

If you want to read all about it, just click on the first link. If you just want to cut to the chase and order it, click on the second. It’s worth your time.

Posted in Case Studies | 24 Responses

Stocks — Part VIII: The 401(k), 403(b), TSP, IRA & Roth Buckets

Old wooden buckets

So far in this Series we’ve examined the market and looked at some sample portfolios built from our two key index funds and cash. Those funds are what we call investments.

But in our complex world we must next consider where to hold these investments. That is, in which bucket should which investment go? It is important to understand that 401(k)s, IRAs and the like are not investments themselves. Rather think of them as the buckets that hold the investments we choose. Broadly speaking, there are two types of buckets:

  1. Ordinary Bucket
  2. Tax-Advantaged Buckets

Now at this point I must apologize to my international readers. This post is going to be very US centric. I am completely ignorant of the tax situation and/or possible tax-advantaged buckets of other countries. My guess is that, at least for western style democracies, there are many similarities. Most modern economies recognize the value of investing and seek to encourage it. Hopefully it will be possible for you to extrapolate the information here into something relevant to where you live. If not, feel free to skip ahead. You might find these posts particularly useful:

Here in the US the government taxes dividends, interest and capital gains. But it has also created several tax-advantaged buckets to encourage retirement savings. While well intentioned, this has created a whole new level of complexity. Volumes have been written about each of these and the strategies now associated with them. Clearly, we haven’t the time or space to review them all. But hopefully I can provide a simple explanation of each along with some considerations to ponder.

The Ordinary Bucket is where we hold investments that are not part of any tax-advantaged plan. It is, in a sense, no bucket at all. This is where everything would go were there no taxes on investment returns and no opportunities to defer them. We would just own what we own. Easy peasy!

This is where we’ll want to put investments that are already “tax-efficient.” Tax-efficient investments are typically stocks and mutual funds that pay qualified dividends (dividends that receive favorable tax treatment) and avoid paying out taxable capital gains distributions. Such distributions are typical of actively managed funds that engage in frequent trading in their portfolios. VTSAX is a classic example of a tax-efficient investment. The dividends it pays are modest and mostly “qualified.” Because trading (buying and selling) in the fund is rare, so too are taxable gains distributions.

Investments that are “tax-inefficient” are those that pay interest, non-qualified dividends and those that generate taxable capital gains distributions. These are things like some stock funds, bonds, CDs and REITs (real estate investment trusts). These we want to keep ideally in our tax-advantaged buckets as their payouts are then tax-deferred.

There are several variations of tax-advantaged buckets, and we’ll look at each. But first let’s look at our three investments and consider where they might fit:

Stocks. VTSAX (Vanguard Total Stock Market Index Fund) currently pays around a 1.8% dividend and most of the gain we seek is in capital appreciation. It is tax-efficient and we can use our ordinary bucket. However, since this will be a large portion of our total holdings and since any investment can benefit from the tax-advantaged bucket, we will also hold it in our tax-advantaged buckets.

Bonds. VBTLX (Vanguard Total Bond Market Index Fund): Bonds are all about interest payments. Other than tax-exempt municipal bonds, they go into our tax-advantaged bucket.

Cash is also all about interest but, more importantly, it is all about ready access for immediate needs. Ordinary Bucket.


None of this is carved in stone.

There may be exceptions. Proper allocation should trump bucket choice. Your tax bracket, investment horizon and the like will color your personal decisions. But the above should give you a basic framework for considering the options.

Before we look at the specifics of IRAs and 401(k)s, this important note: None of these tax-advantaged buckets eliminates your tax obligation. They only defer it. Fix this in your brain. We are talking about when, not if, the government will be expecting the the tax on these accounts to be paid.

When the time comes to withdraw this money, taxes will be due. So will penalties if you withdraw before age 59 1/2. And come age 70 1/2 (except for Roth IRAs) you will be required to begin withdrawals based on what the actuarial tables say your life expectancy will be. These are called RMDs, or required minimum distributions.

Don’t let this scare you; simply be aware. The benefit of having your investments grow tax-sheltered over the decades is no small thing and in most cases you should fund these buckets to the maximum the law permits.

There are strategies that seek to access this money tax-free, or at least at the lowest possible rate. These involve structuring your earned and investment income so as to fall under the limits the IRS establishes as being tax free. So while the money you withdraw is legally subject to tax, your tax bracket is such that the amount actually owed is zero.

Staying under these limits can also provide the opportunity to shift money tax-free over time from your Traditional IRA to a Roth IRA, thus further avoiding taxes when you withdraw and spend it.

These are well worth considering if your situation allows for them. You can find details in these posts…

From Go Curry Cracker:

From The Mad Fientist:

There are many, many variations of 401(k)-type and IRA-type accounts. We’ll look at the basic types here. The rest are branches from these trees.

Employer-based tax-advantaged buckets

These are buckets provided by your employer. They select an investment company which then offers a selection of investments from which to choose. Many employers will match your contribution up to a certain amount. The amount you can contribute is capped. For 2015 the cap is $18,000 per year and $24,000 for those age 50 and older. You can contribute to more than one plan (if you have access to more than one) but the cap is the total for all together, not for each separately.

In general:

  • These are very good things, but not as good as they once were. Unfortunately many of the investment firms operating these programs have seized upon the opportunity to laden them with excessive fees. This is outrageous and offensive, but the advantage of having your investments grow tax free is not to be missed. Hold your nose and max out your contributions. I always did.
  • Any employer match is an exceptionally good thing. This is free money. Contribute at least enough to capture the full match.
  • Unless Vanguard happens to be the investment company your employer has chosen you may not have access to Vanguard Funds. That’s OK.
  • Many 401(k) plans will have a least one index fund option. Scan the list of funds offered for the ones with the lowest expense ratio. That’s where you’ll find the index funds, if any.
  • When you leave your employer you can roll your 401(k) into an IRA, preserving its tax advantage. Some employers will also let you continue to hold your 401(k) in their plan. I’ve always rolled mine over. It gives you more control, greater investment choices and allows you to escape those ugly fees.
  • You can contribute to both a 401(k) and a Roth 401(k), but the total must fall within the annual contribution caps.

401(k) and 403(b) Type Plans

  • Contributions you make are deducible from your income for tax purposes.
  • Taxes are due when you withdraw your money.
  • Money withdrawn before age 59 1/2 is subject to penalty.
  • After age 70 1/2 your money is subject to RMDs.

Roth 401(k)

  • These are relatively new and not yet widely available. It is worth comparing these bullet points to those of the Roth IRA below.
  • Contributions you make are NOT deducible from your income for tax purposes.
  • All earnings on your investments are tax-free.
  • All withdrawals after age 59 1/2 are tax-free.
  • Once you reach age 70 ½ RMDs take effect.
  • There is no income limit for participating.

TSPs (Thrift Savings Plans) 

These are retirement plans for Federal employees, including military personnel. Think of them as a 401(k), but better.

Unlike the fee heavy cesspool too many 401(k) plans have become, a TSP offers a nice—but not overwhelming—selection of very low-cost index funds.

Looking at the government’s chart of TSP expense ratios going back to 1999 these have ranged from a low of .015% in 2007 to a high of .102% in 2003. The reason for the variation, to quote the government site, is: “The TSP expense ratio represents the amount that participants’ investment returns were reduced by TSP administrative expenses, net of forfeitures.”

Even at their worst, these are very low expense ratios—often lower even than Vanguard index funds, and that’s low! Good deal.

There are five basic TSP funds:

  • The C-fund replicates the S&P 500 index.
  • The S-fund replicates the small cap index.
  • The F-fund is a bond index.
  • The I-fund is an international stock index fund.
  • The G-fund holds a non-marketable short-term U.S. Treasury security unique to TSP.

Own both the C and the S in about a 75/25 balance and you’ve basically got VTSAX. But personally I wouldn’t bother. I’d just hold the C-fund and be done with it.

In addition, there are the L-funds. These are “Lifecycle” funds made up of the other five held in various allocations designed for a particular time horizon. L-funds are very much like Target Retirement Funds.

TSPs are a no-brainer. If you are fortunate enough to have access to them, max them out. And in this one case, because of the ultra-low fees, I wouldn’t roll them into an IRA once you leave your job.

Individually-based tax-advantaged buckets: IRAs


IRAs are buckets you hold on your own, in addition to and separate from any employer sponsored 401(k)-type plans. You have complete control in selecting the investment company and the investments for your IRA. This means you also control costs and can avoid those companies and investments that charge excessive fees. Mine are all with Vanguard.

You can only fund these with “earned income” or money you roll over from an employer-based plan. Typically, earned income is money you are paid for the work you do.

There are three types of IRAs. For 2015 the total annual contribution cap is $5,500 and $6,500 for those age 50 and older.

As with the 401(k) and Roth 401(k), you can contribute to both an IRA and a Roth IRA but again the total must fall within the IRA annual contribution caps.

Deductible and Roth IRAs both have income restrictions for participation. Non-deductible IRAs do not. These income limits change year-to-year and vary according to tax filing status and employer plan coverage.

Deductible IRA. 

  • Contributions you make are deductible from your income for tax purposes.
  • Deductibility is phased out over certain income levels.
  • All earnings on your investments are tax deferred.
  • Taxes are due when you withdraw your money.
  • Money withdrawn before age 59 1/2 is subject to penalty.
  • After age 70 1/2 your money is subject to RMDs.

Non-Deductible IRA. 

  • Contributions you make are NOT deductible from your income for tax purposes.
  • There are no income limits for participating.
  • All earnings on your investments are tax-deferred.
  • Taxes are due on any dividends, interest or capital gains earned when you withdraw your money.
  • Taxes are not due on your original contributions. Since these contributions were made with “after tax” money they have already been taxed.
  • Those last two points mean extra record keeping and complexity in figuring your tax due when the time comes.
  • Money withdrawn before age 59 1/2 is subject to penalty.
  • After 70 1/2 your money is subject to RMDs.

Roth IRA. 

  • Contributions you make are NOT deducible from your income for tax purposes.
  • Eligibility to contribute is phased out over certain income levels.
  • All earnings on your investments grow tax-free.
  • All withdrawals after age 59 1/2 are tax-free.
  • You can withdraw your original contributions anytime, tax and penalty free.
  • You can withdraw contributions that are conversions from regular IRAs after five years, tax and penalty free.
  • You can withdraw as much as you like anytime to fund a first-time home purchase or to pay for college related expenses for yourself and/or your children.
  • There is no RMD.


In short, these can be summarized like this:

  • 401(k)/401(b)/TSP = Immediate tax benefits and tax-free growth. No income limit means the tax deduction for high income earners can be especially attractive. But taxes are due when the money is withdrawn.
  • Roth 401(k) = No immediate tax benefit, tax-free growth and no taxes due on withdrawal.
  • Deductible IRA = Immediate tax benefits and tax-free growth. But taxes are due when the money is withdrawn. Deductibility is phased out over certain income levels.
  • Non-Deductible IRA = No immediate tax benefit, tax-free growth and added complexity. Taxes are due only on the account’s earnings when the money is withdrawn. Contributions can be made regardless of income.
  • Roth IRA = No immediate tax benefit, tax-free growth and no taxes due on withdrawal. A better Non-Deductible IRA, if you will. But eligibility phases out over certain income limits.

Now, if you’ve been paying attention, you might be thinking “Holy cow! This Roth IRA is looking like one very sweet deal.  In fact it is even looking like it violates what Collins told us to fix in our minds earlier: “None of these eliminates your tax obligations. They only defer them.” True enough, but as with many things in life there is a catch.

While the money you contribute to your Roth does indeed grow tax-free and remains tax-free on withdrawal, you have to contribute “after-tax” money. That is, money upon which you’ve already paid tax. This can be easy to overlook, but is a very real consideration.

Look at it this way. Suppose you want to fund your IRA this year with $5,000 and you are in the 25% tax bracket. To fully fund your deductible IRA all you need is $5,000 because, since it is deductible, you don’t need any money to pay the taxes due on it.

But with a Roth, you’d need $6,667: $1,667 to pay the 25% tax due and still have $5,000 left to fund the Roth IRA ($6,667 – 25% = $5000). That $1,667 is now gone forever and so is all the money it could have earned for you over the years.

Were you to fund your deductible IRA, instead of your Roth, you’d still have this $1,667 and it could then be invested. Of course, it is subject to your 25% tax bracket. After paying taxes on it, you’d have $1,250 left to invest ($1,667 – 25% = $1,250).

Curious as to what that might look like? Recalling that the average annual return on the S&P 500 for the 40 years from 1975-2014 was 8.88%:

$1250 invested each year for 30 years @ 8.88%= $166,616

Of course, if you fail to invest the tax savings you’ll lose this advantage and the Roth would have been the better choice.

It can be very emotionally satisfying to fund a Roth, pay the taxes now and be done with them. But it might not be the optimal financial strategy.  If you are still undecided, this series of pros and cons might help.

Because I’m the suspicious type, and the long-term tax advantages of a Roth are so attractive, I start thinking about what might go wrong. Especially since these are such long-term investments and the government can and does change the rules seemingly on a whim. Two potential threats occur to me:

1. The government could simply change the rules and declare money in Roth IRAs taxable. But this is doubtful. Roth IRAs have become so popular and are held by so many people, this seems more and more politically unlikely. Politicians are loathe to take anything away from voters.

2. More likely, the government could find an alternative way to tax the money. Increasingly in the US there is talk of establishing a national sales tax or added value tax. While both may have merit—especially as a substitute for the income tax—these would effectively tax any Roth money as it was spent.

With all this in mind, here is my basic hierarchy for deploying investment money:

  1. Fund 401(k)-type plans to the full employer match, if any.
  2. Fully fund a Roth if your income is low enough that you are paying little or no income tax.
  3. Once your income tax rate rises, fully fund a deductible IRA rather than the Roth.
  4. Keep the Roth you started and just let it grow.
  5. Finish funding the 401(k)-type plan to the max.
  6. Consider funding a non-deductible IRA if your income is such that you cannot contribute to a deductible IRA or Roth IRA.
  7. Fund your taxable account with any money left.

Let’s finish this post with the recommendation that, whenever possible, you roll your 401(k)/403(b) (but not your TSP) accounts into your personal IRA. Usually this will be when you leave your employer. Employer plans are all too frequently laden with excessive fees and your investment choices are limited. In your IRA you have far more control.

Personally, I’ve always been slightly paranoid about having my employers involved in my investments any longer than I had to. The moment I could roll my 401(k) into my own IRA, I did.

Note 1:

Low fees are critical to your investment returns. Personal Capital is a great free tool to manage and evaluate the investments you have, including costs. If, like most folks, you have a range of investments now you can track and compare them. At a glance you’ll see what’s working and what you might want to change. Very cool.

Note 2: 

We’ve touched a bit on tax laws in this post. While the numbers and information are current as of 2015, should you be reading this a few years after publication, they are sure to have changed. The basic principles should hold up for some time, but look up the specific numbers that are applicable for the year in which you are reading.

Note 3:

This is an update of a post and its addendum that appeared originally May 30, 2012 as Part VIII of the Stock Series. Click here if you are curious to read it. I also suggest you check out the conversations in the comments there.

Note 4:

As mentioned in the post, there are many variations of 401(k)-type and IRA-type accounts (457b, Backdoor IRA, SEP IRA and Solo 401k plans come to mine) and clearly we haven’t the time or space to review them all.

But you’ll likely find discussions of them in the comments. In fact, for 457b and Backdoor IRA, they are already there!

Addendum 1: College Savings Plans

Addendum 2: 2015 Tax Brackets, Standard Deductions and more

Addendum 3: 2014 & 2015 Income limits for IRA Deductibility and Roth Eligibility.  Note that you must click between the buttons near the top to go from Roth to T-IRA.

Addendum 4: 

In the comments below, reader David raises a great question/concept: Can we avoid RMDs if we rollover a Roth 401k to a Roth IRA?

Based on my research, I can say this:

First, once leaving your employer, you can definitely roll your Roth 401(k) int0 a Roth IRA. Just like rolling a Traditional 401(k) into a T-IRA.

Second, a Roth IRA definitely has no RMD requirement.

But I am unable to find anything on the IRS site or elsewhere addressing how the funds rolled over might be treated regarding the RMD. It appears to be something the IRS has yet to rule on. How it will fall out is anybody’s guess at this point.

If any readers have or find an IRS ruling on this, please post the info in the comments with a link. Thanks!

Meanwhile and unrelated, recently…


I was interviewed for the Create My Independence Podcast: F-you Money, Stepping Away, Fear and Investing. It was fun to do and I hope you find it fun to listen to.

And, if that’s not enough, check out my As Seen On… page.

New Book:  

My pal Matt Becker of Mom & Dad Money just put out his new book: The New Parents’ Guide to Financial Independence

If his name and website sound familiar to you, it might be because I have had the occasion to link to some of his past posts to amplify a point in one of mine or to introduce concepts I thought valuable to the readers here.

If you want to read all about it, just click on the first link. If you just want to cut to the chase and order it, click on the second. It’s worth your time.

Posted in Stock Investing Series | 73 Responses

Stocks — Part XXVIII: Debt – The Unacceptable Burden

Debt ball & chain

A couple of years after I was out of college, I got my first credit card. They were tougher to come by in those days. Not like now when my unemployed pet poodle has his own line of credit.

The first month I racked up about $300 or so. When the bill came, there was each charge listed by vendor, with the total at the bottom. In the upper right-hand corner there was a box with a $ sign in it and a blank space beside it. Under this in bold letters it read: Minimum payment due: $10

I could hardly believe my eyes. I get to buy $300 worth of stuff and they only require me to pay them back $10 a month? And I can still buy more? Wow! This is awesome!

But still, in the back of my mind I could hear my father’s voice: “If it sounds too good to be true, it is.” Not “it could be” or “it might be.” It is.

Fortunately my older sister was sitting nearby. She pointed out the fine print. The part about them planning to charge me 18% interest on the $290 they were hoping I’d let ride. What? Did these people think I was stupid!?

As a matter of fact they did. It was nothing personal. They think the same of all of us. And unfortunately all too frequently they’re not wrong.

Pause for a moment and take a look at the people around you, literally and figuratively.

What you’ll often see, if you scratch the surface just a bit, is an unquestioning acceptance of the…

Ice wall

single most dangerous obstacle to building wealth: Debt.

For marketers, it is a powerful tool. It allows them to sell their products and services far more easily, and for far more money, than if it didn’t exist.

Do you think the average cost of a new car would be pushing $32,000 without E-Z financing? Or that a college education would cost over $100,000 if it were not for readily available student loans? Think again.

Not surprisingly debt has been promoted as, and largely embraced as, a perfectly normal part of life.

Indeed, it is hard to argue that it has not become “normal.” As I write, here in the US Americans carry a total debt burden of ~12 Trillion dollars:

  • ~8 Trillion in home mortgages.
  • ~1 Trillion in student loans.
  • ~3 Trillion in other consumer loans such as credit card debt and auto loans.

In the future, these numbers will undoubtedly be higher. And most disturbingly, almost no one you know will see this as a problem. In fact, most will see it as their ticket into the “good life.”But let’s be clear. This blog is about guiding you to financial independence. It is about buying your financial freedom. It is about helping you become wealthy and putting you in control of your financial destiny.

Look around at those people again. Most will never achieve this, and their acceptance of debt is the single biggest reason why.

If you intend to achieve financial freedom you are going to have to think differently. It starts by recognizing that debt should not be considered normal. It should be recognized as the vicious, pernicious destroyer of wealth-building potential it truly is. It has no place in your financial life.

If your lifestyle matches—or god forbid exceeds—your income you are no more than a gilded slave.

leeches covered

Carrying debt is as appealing as being covered with leeches, and has much the same effect. The idea that many, indeed most, people seem to happily cover themselves with debt is so beyond my understanding it is hard to imagine how, let alone why, the downsides would need be explained. But here are a few:

  • Your lifestyle is diminished. Set aside any aspirations to financial freedom. Even if your goal is living the maximum consumer lifestyle, the more debt you carry the more of your income is devoured by interest payments. A (sometimes huge) portion of your income has already been spent.
  • You are enslaved to whatever source of income you have. Your debt needs to be serviced. Your practical ability to make choices congruent with your values and long-term goals is seriously constrained.
  • Your stress levels build. It feels as if you are being buried alive. The emotional and psychological effects of being saddled with debt are real and dangerous.
  • You endure the same type of negative emotions experienced by any addict: Shame, guilt, loneliness, and above all, helplessness. The fact that it’s a prison of your own making makes it all the more difficult.
  • Your options can become so narrowed and your stress levels so high, you risk turning to self-destructive patterns that only reinforce the dependence on spending. Drinking perhaps, or smoking.  Or, ironically, shopping and still more spending. It’s a dangerous self-perpetuating cycle.
  • Your debt tends to focus your attention exclusively on the past, present and future in the worst possible way. You become fixated on your past mistakes, your present pain and the disaster looming ahead.
  • Your brain tends to shut down on the subject with the vague hope it will all resolve itself in some magical way and in the magical time of later. Living with debt becomes hardwired in your financial attitudes, habits and values.

Countless articles and books have been written about ridding yourself of debt. If after reading this post you feel you need more guidance and help, by all means embrace them. But be careful not to let the pursuit of the methods get in the way of the doing. The truth is, there is no easy way. But it is pretty simple.

Here’s what I’d do:

  • Make a list of all your debts.
  • Eliminate all non-essential spending, and I mean all of it.* Those routine $5 coffees, $20 dinners and $12 cocktails add up. This is what will free up the money you need to pour on the debt flames that are burning up your life. The more you pour the sooner you stop burning.
  • Rank your debts by interest rate.
  • Pay the minimum required on all your debts and then focus the rest of your available money on the one with the highest interest rate first.
  • Once you’ve blown that one away, move on to the second highest and right on down the list.
  • Once you’re done, send me a note and let me know. I’ll then be raising my glass in a kudos salute to you!


Here’s what I would not do:

  • I would not pay a service to help. This only adds to your cost and such credit counseling services have no magic formulas or techniques to make this less painful. You, and only you, can do the work.
  • I would not worry about trying to consolidate your loans in to one place, not even for a lower interest rate. You are going to pay these puppies off fast and hard. Once they’re gone your interest rate will be Zero. That’s your goal, not merely taking your rate from 18% to 12%. Focus your time and attention there, rather than on exploring clever strategies.
  • I would not pay off the smaller loans first for the psychological boost. I know this is a key part of at least one popular strategy, and if it makes you more likely to stay the course so be it. But as you’ve learned reading this Stock Series, I’m not a fan of such crutches. Better to “toughen up, cupcake” and adapt yourself and your attitudes to the numbers than to adapt the strategies to your psychological comfort levels.

In short, nothing fancy. Just do the work and get it done.

This is not going to be easy. Simple, yes. Easy, no.

It will require you to rather dramatically adjust your lifestyle and spending to free up the money you need to direct toward your debt.

It will require serious discipline to stay the course over the months, maybe years, it will take to eliminate your debt.

But here’s the good news, and…

girl jumping-for-joy-85505

…it really is awesomely good.

Once you’ve ingrained that lower spending lifestyle and made diverting the excess cash to your debt your path, you will have also created exactly the platform required to begin building your financial independence.

Once the debt is gone, you need only shift the money to investments.

Where once you had the satisfaction of watching your debt diminish, you’ll now have the joy of watching your wealth build.

Waste no time. Debt is a crisis that needs immediate attention. If you are currently in debt take out your sharpest knife and start scraping the little bloodsuckers off. Nothing else is more important.

Look again at those people around you. For most, debt is simply a part of life. But it doesn’t have to be for you.

You weren’t born to be a slave.

A few cautionary words on “good debt.”

Occasionally you will hear the term “good debt.” Be very cautious when you do. Let’s briefly look at the three most common types.

Business loans.

Some (but not all) businesses routinely borrow money for any number of reasons: Acquiring assets, financing inventory and expansion to name a few. Used wisely, such debt can move a business forward and provide greater returns.

I include small scale investment real estate by individuals in this category.

But debt is always a dangerous tool and the history of commerce is littered with failed companies ruined by the debt they took on.

Astutely dealing with such debt is beyond the scope of this blog, other than to say those who use it successfully do so with great care.

Home mortgages.

Taking on a mortgage to buy a house is the classic definition of “good debt.” But don’t be so sure.

The easy availability of mortgage loans tempts far too many into buying houses they don’t need or that are far more expensive than prudent. Shamefully, this overspending is often encouraged by real estate agents and mortgage brokers.

If your goal is financial independence, it is also to hold as little debt as possible. This means you’ll seek the least house to meet your needs rather than the most house you can technically afford.

Remember, the more house you buy the greater its cost. Not just in higher mortgage payments, but also in higher real estate taxes, utilities, maintenance and repairs, landscaping, remodeling, furnishing and opportunity costs on the money tied up as you build equity. To name a few.

Houses are an expensive indulgence, not an investment. That’s ok if and when the time for such an indulgence comes. I’ve owned them myself. But before letting yourself be blinded by the idea that owning one is necessary, always financially sound and automatically justifies taking on this “good debt,” run the numbers.

Student loans.

When I was in college at the University of Illinois from 1968-72, the total annual cost was $1,200. This $1,200 covered everything:  Tuition, books, rent, food and even a little entertainment.

Each 12-week summer I worked taking down diseased Elm trees. I was paid $20 a day over a six-day week. I saved $100 a week and by Fall had the $1,200 needed for the school year.

Of course, I lived in one room of a dilapidated old house that should have been condemned. White rice and ketchup served as dinner two or three times a week.

Fast-forward to 2010-14, my daughter’s college years. The all-in yearly cost averaged $40,000 at URI, also a state school. NYU, her other option, would have run $55,000 to $60,000 per year. As a former colleague of mine once said, that’s like buying a new BMW, driving it for a year and throwing it away. Then buying another. For four consecutive years.

Inflation certainly played a role. Using the CPI (consumer price index), what cost $1 in 1970 took $6.36 to buy in 2014. A six-fold increase.

In the same time period, a 4-year state school college education went from $4,800 to $160,000. A 33-fold increase.

Make no mistake: easily obtained student loans have flooded the system with money.

Universities have been and continue on a building boom. Fancier prices require fancier settings.

The average salary of a university president in 1970 was ~$25-30,000. Today it averages around $500,000 and can run into the millions.

Not only has this driven up the cost of everything college related, it has virtually eliminated the option of living cheaply.

That ramshackle house I lived in? Torn down to make way for fancy new dorms.

Eat in on rice and ketchup? No worries, my friends did the same. It was a source of pride. Today, it would be a source of embarrassment as all your student loan funded pals go out for sushi.

Moreover, one of the more unfortunate results of spiraling college costs and debt is the way it has warped the very concept of higher education. Rather than the pursuit of learning and culture, it has become the pursuit of job training in an effort to secure employment that will justify the astounding cost and debt incurred.

Even successfully applied, this shackles young people to jobs long after the appeal has faded. Youth should be spent exploring—building and expanding one’s horizons—not grinding away in chains.

Here’s the real kicker: Unlike other kinds of debt, as truly awful as they are…


you can never walk away from your student loans.

They survive bankruptcy. They will follow you to your grave. Your wages, and even Social Security, can be garnished to pay them.

No wonder banks are falling all over themselves to issue this debt.

I am a firm believer in personal responsibility and debts freely taken on should be faithfully repaid. But the ethics of encouraging 17 and 18-year-olds—who likely have little financial savvy—to almost automatically accept this burden gives me serious pause.

We are creating a generation of indentured servants. It’s hard to see the ethics or benefits in that.

Addendum I: While the mantra here is “avoid debt at all costs,” if you already have it, it is worth considering if paying it off ahead of schedule is the best use of your capital. In today’s low rate environment, here’s my rough guideline:

  • Less than 3%, pay it off slowly
  • 3-5%, whatever feels most comfortable
  • More than 5%, pay it off ASAP

Addendum II: *Want to know what “Eliminate all non-essential spending, and I mean all of it” might look like?: If we woke up in debt

Addendum III:   Some common sense on credit scores

Addendum IV:  The College Conundrum

Meanwhile and unrelated, recently…


Posted in Education, Stock Investing Series | 128 Responses