Strawberry Patch
An original painting by Alex Ferrar
On display at his restaurant Sobremesa, Antigua, Guatemala
In this Q&A Edition IV we talk about:
- Setting up kids financially (and get to hear my own daughter’s take)
- Newsweek’s article on the whistleblower v. Vanguard lawsuit
- Explore the idea of getting a mortgage interest tax deduction by making a much larger mortgage payment before the sale of the property
- Celebrate a reader’s victory
- An embarrassing (to me) question from Kevin on my long-promised book
- Take on a mini-Case Study with Tom
- Accept Hahna’s invitation to contribute to her 41 experts post and my answer to her question: What one major limiting investing belief hindered my financial success?
- Currencies and international bank CDs at 7-8%
All these are drawn from the Ask jlcollinsnh page. Next time in Q&A-V we’ll look at some that have cropped up on other posts throughout the blog.
This year I put up only 18 new posts. Part of the reason is that virtually everyday I answer questions in the comments here on the blog. When readers take the time to comment if they ask a question or two I very much like to be able to respond.
But buried in the comments section of whatever post they’ve chosen, our conversation is unlikely to be seen and enjoyed by other readers. In fact, when answering I can’t really even be sure the original commentator has subscribed to the comments and will see the response. It is tempting to blow off these questions and simply move on to writing new posts more readers will see.
But the calibre of most of the questions is excellent and, as I’ve often contended, the comment section on this blog has some of the best, most interesting content.
Back in the Spring of 2014 I ran a series of posts highlighting some of these questions:
These posts were very well received and so, at long last, here is the fourth in this series. As with the first three, it is named after the featured painting above. Of course these posts are only the tip of the comment/question/answer material here, so if you like reading them I encourage you to poke around in the comment sections a bit more on your own.
OK, let’s get started…
Todd asks about setting up kids financially
Posted December 5, 2015 at 11:53 am
Hi Jim Collins ~
As slightly older parents of a four year old, I am wondering how best to set the child up for her future. You’ve done well writing about your experience(s) in posts about your daughter (regardless of the misleading titles) and I am looking for your thoughts.
I’ve gleaned more useful information from you that it is a ‘given’ when I have a question, I check your blog (and MMM, GCC, MF, as well). Thank you, in advance, for being such an incredibly kind, patient and pleasant voice of genuine concern when it comes to financial matters.
Our Background:
I am self-employed & my wife is part of the company (and a stay-at-home mother). We are each funding our SD401K (index funds), receive profit sharing from the company and contribute to our Family HSA. We each have a ROTH account – many years old, and without much in them. We “might” be able to contribute to these, however we may be ineligible (yet to be determined, for certain).
We save 50 to 70% of our income monthly, and are fortunate enough to do so. This is the first year of being this “savings / investment aggressive” for us, and we feel that we can maintain these goals, all things considered.
My wife & I have worked diligently to get to where we are – and we want to instill this work ethic in our little one. We do expect that our child will have to work / struggle to fund some of her own education – however, we also want to allow her the freedom to pursue her interests.
With that said, I want to begin saving for my child, and would appreciate your suggestions. I’d like to start her path to FIRE, as well as start contributing toward her college savings. Presently, I don’t know if she will want to go to college, but it seems a wise & prudent plan to save for such, regardless.
The 529 plans have limitations as to what can be done with the monies if she chooses to forego higher education – this makes me a bit nervous. We don’t have other children, nor other “qualified individuals” to give / gift this to – and neither my wife nor I will attend college again. (Tax rate + 10% penalties on withdrawals IF not used for purpose).
I would consider a trust, if that would be a better choice? (I am not sure what the rules / tax regulations are surrounding this idea).
You have “F-You” monies set up for your child – what did you do / set up for her? What would your plan be today, if you were doing this again? The same? Something different? If so…what?
Much like you, I’ve been blessed with a little gift from God: I want to make sure I do right.
Thank You,
Todd
jlcollinsnh
Posted December 8, 2015 at 12:29 pm
Hi Todd…
Well, that’s a HUGE question. 🙂
It sounds like you are in a very similar situation as we were: Namely our child was born after we’d reached FI and so missed out on witnessing the effort it took. Kids, of course, learn by example.
One of the key factors in success is having grit. And just this week I finally came across this short Ted Talk that supports my opinion on this: https://www.ted.com/talks/angela_lee_duckworth_the_key_to_success_grit#t-173597
My wife and I came by our grit by facing some tough times when we were young. So the question becomes, how do we instill grit into our children who, because of our success, won’t have the benefit of their own tough times?
For that matter, is it even possible to instill grit?
Now 23, our daughter seems to have a fair share and her current life in the Peace Corp is testing it well.
I’m not sure how much any of this helped (how your kid turns out is at least in part due to the genetic lottery), but here’s some of what we did:
- Living modestly and below our means she never really grew up “rich”
- While we lived in a fairly wealthy town (for the school system) we never indulged her by buying brand name, fashionable stuff.
- Unlike many of her friends, she didn’t get a car for her 16th birthday. (although we allowed her fairly liberal use of the family car)
- While we paid for her college (tuition, books, room & board) she had to work for any extras (clothes, entertainment). She was a waitress.
So, not as tough as we had it, but much tougher than many of her peers.
Once she started working, each year I funded a Roth IRA for her.
Like you, I’m not a fan of 529 plans and never used one.
Trusts have always struck me as overly complex and expensive. Maybe if you come to see your child as immature and irresponsible the complexity and expense might be worth it. But fortunately, we don’t have that problem.
In the end, the best you can do is to love them and guide them and hope they use the benefits you are able to provide to become (rather than weaker) stronger and more successful.
And, yes, I’d do it pretty much the same way if I had it to do over.
Hope this helps!
Jessica Collins
Posted December 8, 2015 at 8:18 pm
Hi there Todd,
I was reading your question to my dad, as well as his response, and thought I could add a bit from my own experience.
While I can’t give you details behind his mastermind plans (only he knows what’s going on in his brain), I can share a bit about how he and my mom taught me about money.
When I was very little, my parents started giving me an allowance. I don’t remember exactly how old I was, or how much it was, but for as long as I can remember, they gave me an allowance, until I started working.
Anyways, when I received my allowance, my parents always encouraged me to divide my allowance into three parts: a college fund, savings and personal use. When I was very young, my parents told me how much to put in each, but once I got a bit older (maybe around middle school?) they started leaving the choice up to me. I would also do this with birthday money and Christmas money.
Now I will admit (and I ofter joke with my dad about this), at a young age I did not really understand this concept. Let’s say my allowance was $1. I would put 25 cents into my college fund and 25 cents to my savings, so I would have 50 cents for myself to spend. At the time, I didn’t realize what I was doing. I just thought I had 50 cents and the other 50 cents disappeared and I would never see it again.
Eventually, I began to understand what I was actually doing with my money was investing it in my future. Yes, I went years not understanding why my parents would give me an allowance, only to take half of it away. 🙂
But, by the time all this clicked, I was already in the habit of putting money aside. I was in the habit of saving. Even while I’m here in the PeaceCorps I am still putting aside money from my tiny monthly allowance every month, in hopes of saving even a small amount while here.
Another thing my parents would was to sit with me and go over my finances. I know, sounds really intense, especially for a little girl (and it was- I hated these talks!).
We would sit at the kitchen table and go over my money: how much I had saved, and how much I had personally to spend.
When I was old enough to have a bank account, we would go over my bank statements as well.
We would discuss what I had spent my money on. They never lectured me on how to spend my money but just talking about it brought to my attention what I was spending money on and how much. Over time, this helped me prioritize what I value and would prefer to spend money on.
My parents also kept me very involved in my own finances. When it was time to open a bank account, my dad took me to the bank, where I talked to the nice bank lady about my options. Of course I didn’t make the decision on my own, but being involved helped me feel more in control of my finances.
Sorry to ramble on, just wanted to share my side!
I think as long as you keep your child involved in their own finances (whatever that may look like), then they will be ok. They may not enjoy it and they may push against it ( I know I did!) but they will come around.
It’s better to start them young and have to kind of force them; at least when they realize it’s importance, they will be prepared with the necessary tools.
I think the thing that made understanding money so difficult for me, was that, in order to understand money, one must have life experience. Most little kids don’t have life experience.
However, it’s once those life experiences start to come, those things start to clink into place. And although they may not understand right away, they will remember.
Hope this helps!
I have read about Vanguard being at risk of losing upcoming state and federal lawsuits about its tax-free status. Vanguard would then owe billions in back taxes.
I assume the expense ratio for the funds would skyrocket.
What will happen immediately to the value of Vanguard ETFs if Vanguard loses these lawsuits?
Are the ETF values tied to the market, or can Vanguard choose to devalue its ETFs in order to raise money to pay back taxes?
If the value of my Vanguard ETFs is at risk, should I sell out before the lawsuits are decided?
jlcollinsnh
Hi Chris…
Thanks for bring this to my attention.
So everyone else is up to speed, here is the article:
http://www.newsweek.com/vanguard-whistleblower-tax-dodge-complaint-400901
I reached out to my Vanguard contact and here is her response:
“Hi James.
“I understand why your readers are concerned about the highly speculative Newsweek article. We have not issued a public statement on the article, but let me give you some background so that you can get your arms around the issue.
“First, the New York Supreme Court dismissed the suit in question last month. The Court agreed with Vanguard’s position that the former employee violated attorney-client privilege and New York state ethics rules in bringing the claim. We are not aware of any other lawsuits on these issues.
“Second, there have been many inaccuracies in news accounts on this matter and pure conjecture about payments and the potential for rising expense ratios. The tax payment we have paid to Texas—the result of a routine, unrelated audit—will not change any fund’s expense ratio or performance, nor the account balance or tax obligation of any client.
“The Newsweek article also speculates about the potential for higher fees for Vanguard clients. Given our strong cash inflows and solid financial markets, we expect to continue to lower the cost of investing for our clients.
“Finally, we remain confident in our approach to paying our fair and appropriate amount of taxes.
“Let me know if you or your readers have further questions.”
Here’s my take:
This sounds to me like a despicable money grab on the part of this “whistleblower” and the idea of punishing a company (Vanguard) for doing right by their customers is outrageous. I would have been stunned if this suit had been successful.
But even if it had, the worst outcome I can imagine is that Vanguard would be forced to raise their expense ratios to the level of the rest of the other fund companies. Initially this cash flow would be used to pay any back taxes and penalties. After that it would flow back to us shareholders because, thru owning the funds, we are the owners of Vanguard.
https://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked/
This might then be taxable income to us which, while not ideal, is hardly the end of the world. ????
In short, even in the worst case scenario (which is not happening), there is nothing here that would cause me to sell.
Hope this helps!
Hi Mr. Collins,
It’s so good to have you back and laboring on the blog again! I have a tax-related question and hope to hear what you think.
I’ve decided to sell my rental property which has doubled its value since I bought it in 2011 (crazy area that I live in!), but wonder if I can take full advantage of the mortgage interest tax deduction by making a much larger mortgage payment before the sale?
It seems like a tax gimmick to me, but also perfectly legal after some google research. You are way knowledgeable in our depressingly convoluted tax rules, and mentioned in previous posts that you volunteer with VITA each year, so I’m really hoping to hear your thoughts on my tax loophole “scheme”. Thanks again for keeping up this wonderful, sometimes life-changing blog!
I think your question actually has more to do with how mortgages work than taxes.
Any mortgage interest paid is deductible in the year you pay it, assuming you itemize your deductions.
But if you pay extra on your mortgage, that money would go to paying down your principle. But you wouldn’t owe any more interest with the extra payment, so nothing deductible would happen. Just like when you sell and pay off the mortgage, interest stops accruing.
This is really not an area of expertise for me, but that’s my take!
Hope it helps!
Dear sir,
You are right, again and of course. I actually knew extra payments would count against principle rather than interests; somehow, wishful thinking came over me! 🙂
In my defense, lots have happened and I just made “the leap” of getting myself unemployed LOL. Now selling the condo, debating where to travel to in my new found freedom, what volunteer work/”do-gooder” stuff I can attempt, …, it’s all a bit too much to handle at once. Anyways, that’s my excuse for coming up with stupid schemes!
Again, I can’t thank you enough for this blog and your always cool-headed advice. I can’t say I’d never have done it without your wonderful blog, but am sure it would have taken me much longer and more detours. So, thank you again from my heart!!
Dear Mr. Collins,
I’ve been meaning to write and tell you my small victory, while still basking in the afterglow of saying goodbye to the 9-to-5 life :).
There’s nothing extraordinary here, just a somewhat independent and contrarian disposition, distaste for wastefulness and mindless consumption, a few lucky breaks, plus wise advice from bloggers like you and MMM.
The only thing that might stand out is I’m an immigrant who only came to the US in my late 20s. After getting an MBA, I worked as a software engineer/project manager for 12 years at rather modest salary (under $100k/year, VERY modest by Bay Area standard :D). Took a break for a year and half, then came back and worked another 2 years.
Basically after ~15 years of working decent but not really high-paying jobs, I’ve accumulated enough (according to the 4% rule) to no longer having to depend on regular pay checks. I didn’t even save that hard to be honest, with the biggest savings being maxing out 401k contributions. Also made plenty of mistakes along the way, picking individual stocks, buying a brand new VW sedan AND a 3-bedroom 2.5 -bath townhouse (all for one-person household!).
If I, overall a pretty average person, can do it, everyone can if they choose to. Everyone who’s got a decent education, average intelligence, and a bit of luck, that is.
Of course I’m also a bit terrified! The stock market is very much over-valued, so is my net worth naturally. But obviously I’m not going to be dogmatic about the 4% rule and will adapt. I could always free-lance for supplemental income. There are a few ideas I’ve been tossing around in my head that have to do with promoting local businesses, building communities, etc., etc. Geographic arbitrage will also play a role.
Anyways, I’m probably in a too excited state to write intelligently; except that I truly want to thank you for your excellent blog, your unfailing patience and sage advice! It’s rather lonely to be financially intelligent, oddly enough, as the Bay Area is full of super smart people. I’m so glad I can always count on you, MMM, GCC, and Mad Fientist for a sense of community and fellowship. So thank you again and looking forward to your next post.
Yours ever-grateful,
Jian
Hi Jian…
Anybody referring to my “excellent blog, unfailing patience and sage advice” is clearly writing intelligently. ????
Congratulations on reaching FI! I’m deeply honored to hear my blog has played some small roll.
Well played.
Well deserved.
You are right: Financial intelligence is rare and the path to FI is lonely. That fact is always brought home to me at our Chautauquas where attendees invariably report that the best part is finally being sounded by like-minded people.
Enjoy your new found freedom!
Warm Regards
Book update?
When will it be available and what can you tell us about it?
I was hoping it would be released by now so I could send it as Xmas gifts to family and friends.
Thanks.
Unfortunately for both of us, it won’t be out in time for Christmas.
I got burned out on the project over the summer, my editor entered a monastery and it has been sitting since then.
The good news is the manuscript is nearly done, but I gather there is a lot more to do after that before it gets published.
Sigh!
Hi Jim,
Hope your enjoyed your time in Ecuador. This is a reposting from Oct., sorry about that. I’m trying to get an opinion on what to do.
Recently my wife was laid off of her job after 18 years.. She has a chance of continuing to work for them but would have to move which we do not want to do at this time.
Anyway, we have 310K in a 401k, 170k in a pension which will pay approx, $1500 a month for 20 years starting at 65 years of age, and finally 70k in the government TSP.
At this time I thought about rolling everything over to Vanguard VTSAX in a IRA. The 401k is limited Vanguard funds, the annuity is something I’m not a fan of. I like the idea of having control of our money and being able to help the kids out later.
The TSP is 80% C and 20% S funds. And I’m just letting it sit there until 701/2 years of age.
My wife plans to retire at 66, but since losing her position her income and benefits have dropped dramatically. And who knows when she will be able to find permanent work. Regardless of what anyone says, when your in your late 50″s, jobs are harder to find.
Right now she’s working temp jobs on a regular basis. I retired after 32 years with the Federal government. I have some serious spine issues so I’m limited in what I can do.
Right now we have 300k in equity of a 400K home. My idea is to sell the home and buy something for cash, then use the money saved to continue to invest in the 401k.
It’s not going to be anyway near possible for my wife to get the same pay or benefits she was getting before. Were trying to be realistic at this point.
Once she reaches age 66, we will move to a more affordable city and closer to family. I have a pension of 30k per year, and my wife SS will be approx 27-30K per year.
Bottom line, is it a good idea to roll over everything to VSTAX, or because my wife is not investment savvy, I would consider using Betterment, which would make it maybe easier for her to understand and get help when I pass on.
My first and foremost concern is too make sure she will be ok. Thanks for your help.
Hi Tom…
Thanks for your patience in waiting for my return from Ecuador and for reposting.
Your situation is a great reminder to younger people: No matter how much you love your job today, things change and you need to prepare for the often uncertain future.
I’m a little unclear as to the details of your situation, so let me start by reviewing where I think you are.
- You don’t mention your ages, but I gather you are in your late 50s.
- You also don’t mention your annual spending.
- You have three coming pensions/SS revenue streams: Your Government pension of 30k, your wife’s of 27k and the 170k pension that will pay $1500 per month, 18k a year.
- Those all = $75,000 per year once you both are 65/66.
- You have 70k in your TSP account split 80/20 C/S which roughly = the total stock market index like VTSAX.
- You have 310k in an old 401k you plan to roll into an IRA with Vanguard invested in VTSAX, or into Betterment.
- You have 300k equity in a 400k house.
- With this understanding, let me first answer your specific questions and then offer some additional thoughts.
Only you and your wife can decide if Betterment will make her life easier. Here is my take: Betterment
But Betterment will cost more and a couple of simple investments at Vanguard should be fairly easy for her to deal with as well.
If you plan to hold the TSP accounts and add VTSAX in the IRA (both good ideas), once these are set up there is nothing more to do. Easy peasy.
But, since you are both no longer working, I would suggest you add some bonds (VBTLX) to smooth the ride. This will help you decide: Selecting Your Asset Allocation.
My other thoughts:
- As you suggest, finding new employment at 50+ can be a challenge. Unless she is fairly confident that she’ll be successful, you might consider that move to the lower cost city closer to family sooner rather than later. You’ll sell the house, lose the remaining mortgage and free up some capital.
- Maybe give the job search 6-12 months and if nothing comes together, make the move.
- Use your 310k and 70k and freed up house capital to bridge the gap (5-8 years?) between now and when those pensions/SS start rolling in.
- Pick up some extra cash with part-time work in your new location that hopefully you’d each enjoy.
Hope this helps!
Tom
December 2, 2015 at 6:29 pm
Jim,
Thanks for the quick reply.
I’m 61, and my wife is 56. We roughly spend 30-33k a year for everything. Everything else mentioned is right on.
It’s great to get another opinion that you can trust. Can’t tell you how many times one can second guess themselves. We are grateful for everything and don’t take anything for granted.
Happy Holiday Season!
jlcollinsnh
December 2, 2015 at 10:14 pm
My pleasure, Tom…
Have a wonderful holiday season yourselves!
Hey jlcollinsnh,
I’ve been following your blog for a few years now after first being introduced to it by Mr. Money Mustache and, as a result, I have achieved a six-figure investment portfolio and net worth using your advice.
I’m creating an expert roundup post for my blog, hahnakane.com. My mission is to interview financially successful people and share their knowledge with college-educated millennials to help them master their money, so that they can achieve the lifestyle they truly desire. I would love to include your insights on the following topic:
What was one major limiting belief that hindered your success with investing and how did you overcome it?
There’s no maximum limitation on the length of your answer, but a minimum of 50–100 words on this topic would be fantastic.
Several influential bloggers have also contributed like Financial Samurai, Healthy Wealthy Income, Money After Graduation and many others!
Deadline for submissions is December 19th, 2015 – hope you are able to participate.
Keep being awesome!
Cheers,
Hahna
Hi Hahna…
Welcome and congratulations on the the six-figure portfolio. At that level the compounding magic really starts to produce amazing results.
I’m pleased to hear this blog played a role in your success and honored that you’d ask me to participate in your round up post. Thanks! 🙂
Here’s my response so my readers here can also see it:
The one major limiting investing belief that hindered my financial success…
Hands down: The time it took me discover the concept of index investing and the embarrassing long time it took me to accept it.
Somewhat ironically, Jack Bogle launched the first index fund (The S&P 500 Index Fund) in 1976, just a year after I started investing. How much wonderfully easier and more profitable my investing life would have been had I learned about it right away and been wise enough to embrace it.
I didn’t and I wasn’t.
It took ten years before I heard of Bogle and index investing. By then I had been seduced by the concept of being able to pick individual stocks and/or star fund managers who could.
Because I was reasonably successful (and in fact achieved financial independence by 1989) doing this, I was very slow to really examine the research. It is not, after all, that you can’t make money picking stocks and fund managers. It is that indexing is far easier and far more powerful.
To this day I cringe when people intending to compliment me say my blog and its tilt toward indexing are a great option for beginners and those not willing to learn how to invest. Rubbish. It is a great option for those who want the best possible results.
But it took me another ~15 years to finally embrace it. Why? Well besides the fact I was getting good if not optimal results without it, I think there is a lot of psychology behind it:
1. It is very hard for smart people to accept that they can’t outperform an Index that simply buys everything. It seems it should be so easy to spot the good companies and avoid the bad. But the research over the decades is comprehensive and clear: It’s not.
This was my personal hangup and I wasted years and many $$$ in the pursuit of out-performance.
2. To buy the Index is to accept “average.” People have trouble seeing themselves or anything in their life as average.
But in this context “average” is not in the middle, it is the combined performance of the all the stocks in an index. Professional managers are measured against how well they do against this return. It’s a very tough benchmark.
In any given year – and of course this varies year to year – ~80% of actively managed funds underperform their index. Go out 15+ years and the percent who do is vanishingly small.
This means just buying the index guarantees you’ll be in the top performance tier. Year after year. Not bad for accepting “average.” I can live (and prosper) with that kind of “average.”
3) The financial media is filled with seductive stories of individuals and pros who have outperformed the index for a year or two or three. Or in the rare case, like Warren Buffett, who has done it over time. (I cringe at the often touted suggestion to just do what Buffet does. He is famous precisely because he has done something excitedly rare.)
But investing is a long term game. You’ll have no better luck picking and switching winning managers than winning stocks over the decades.
4) People underestimate the drag of costs to investing. 1 or 1.5 or 2 percent seems so low, especially in a good year. But such fees are a devil’s ball & chain on your wealth. As Jack Bogle says, performance comes and goes. Expenses are always there.
5) People want quick results. They want to brag about their stock that tripled or their fund that beat the S&P. Letting an Index work its magic over the years isn’t very exciting. It is only very profitable.
6) People want excitement. Heck, I’ve even admitted to playing with individual stocks with a (very) small fraction of my money. But I let the Indexes do the heavy lifting and they are the ones that build my F-you Money.
7) Finally, and perhaps most influential, there is a huge business (Wall Street) dedicated to selling advice and brokering trades to people who believe they can outperform. Money managers, mutual fund companies, financial advisers, stock analysts, newsletters, blogs, brokers all want their hand in your pocket. Billions are at stake and the drum beat marketing the idea of out-performance is relentless. In short we are brainwashed.
Indexing threatens the huge fees they can collect enabling your belief and efforts in the vanishingly difficult quest for the alluring siren of out-performance.
My advice, use The Force (index funds) and keep what is yours. For more:
Hi Jim,
First, please accept my compliments for this great blog and all the other blogs you point to!
I am a foreign worker, working in the US. I have access to banks in my country that pay ~7-8% interest rate on fixed deposits (similar to CDs in the US).
Obviously if I have to invest in those I have to convert dollars into my country’s currency, so there is some exchange rate related risk there. So far, in my portfolio I use these as safe investments in place of bonds.
It would be great to hear your thoughts on a couple of things:
1. Given that these deposits give me a guaranteed 7-8 % return, should I invest the majority of my savings there instead of the US stock market.
2. I find it hard to model the currency risk in my mind to decide how much should I save in these deposits vs how much should be invested in the US stock market. Any thoughts/resources on how should one think about currency risk while investing?
Would much appreciate your thought on this topic!
Thanks
PS
Thank you PS…
…your compliments are much appreciated!
I’m going to guess your home country is India and we are talking about the Indian rupee?
Bank savings rates are pretty directly tied to inflation rates, so 7-8% indicates high inflation. Doing a little quick research, the inflation rate in India has averaged ~8% from 2012-15. The high was 11.16% in 2013 and the low came this year in 2015 (overall ~5%): 3.69% http://www.tradingeconomics.com/india/inflation-cpi
So, if the Indian inflation rate continues declining, locking in 7-8% is a good deal. If it stabilizes at ~5%, your net return after inflation is only 2-3%. Not so good.
But inflation rates can change very quickly. Lock in too long and a rising rates can crush you. 8% in an economy inflating at 11% is no bargain. Lock in too short and before you know it the bank rates have dropped when your CD comes due.
Right now the US dollar is very strong on the world stage and it has the advantage of being a reserve currency. This simply means it is commonly used in international transactions and is accepted widely around the world as a “hard” currency.
The other major reserve currency is the Euro, followed to a lesser extent (measured by those international transactions) by the Pound, Yen, Yuan (just added in 2015) Canadian Dollar and Swiss Franc. Pretty much in that order.
But the US Dollar is clearly #1 and has been for some time. Will it remain there? That is a subject of much debate. My guess is it will.
But others point to things like our growing national debt (currently pushing 19 Trillion dollars: http://www.usdebtclock.org) and the fact the rest of the world would love to see the US pushed off its perch (a key reason for the support of the Yuan).
Add to these currency considerations, you need to choose between fixed income and stocks. Stocks are volatile and can drop fast and hard, but have a very strong record over time. And, as we’ve seen, that 7-8% bank return is not without risk or as attractive as it seems at first glance.
As for deciding on your allocation between stocks and CDs (bonds), check out: Selecting Your Asset Allocation
You might also want to consider the political stability of India v. the US and where you’ll be living in the future.
No easy choices here, but hopefully this gives you some ways to think about it.
Let us know what you decide!
Let’s close this post by noting it seems if he read my blog and the comments in it….
Donald Trump would be $10,000,000,000 richer
Note: I am aware of and apologize for the formatting glitches in this post. My guess is they hitchhiked on in as I cut and pasted the comments. Clearly I’ve been unable to correct these but, after hours of trying, it is what it is!
Important Resources:
- Vanguard.com (unfortunately Vanguard doesn’t have an affiliate program)
- Empower* is a free tool to manage and evaluate your investments. With 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. Here’s my full review.
- 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.
- Tuft & Needle helps me sleep at night. Unfortunately they are no longer an affiliate, but still 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:
“Crime not objected to.”
One of my favorite characters from a favorite author. If you like it, here are two more:
Jack Reacher roams around the country carrying only a folding toothbrush. When his clothes get dirty he buys new ones. Oh, and he kills lots of bad guys. “Make Me” is the most recent in the series, but not the best. That might be this one:
Last Line: “This ends my true account of how I avenged Frank Ross’s blood over in the Choctaw Nation when snow was on the ground.”
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.
Why the future might be incredibly good. Unless the grey goo gets us.
This might be the most enlightening and entertaining take on American history I’ve yet to read.
And here are some of my all time favorites:
The book that has most influenced how I live my life.
“The Fall of Edward Barnard” is very possibly my all-time favorite short story.
Perfect for the readers of this blog.
“Bartleby the Scrivener” is very possibly my all-time favorite novella. Don’t be put off if you struggled with Melville’s “Moby Dick.” This is a much better and easier read. Plus it will teach you the most important phrase in the English language:
“I would prefer not to.”
*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.
Here’s to a
