The Financial Freedom Blog – February 2007 Home Page : : February 2007

February 1, 2007 07:54 The Government Worker’s Path to Early Retirement

I’ve added FoolMeOnce’s story to the “Middle-Class Millionaries” section of the site. FoolMeOnce got to early retirement through a career in government service.

Juicy Excerpt: I plan on retiring in a few years at age 55…. When I retire I will receive about 70% of my high three salary and maintain full health plan benefits. The pension is inflation-adjusted using the full CPI. I can enjoy my current standard of living on about 2/3 of this amount.

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February 2, 2007 08:01 Stock Picking for Indexers

I’ve added an article to the “Valuation-Informed Indexing” section of the site entitled Stock Picking for Indexers.

Juicy Excerpt: A portfolio that contains both individual stocks and shares in an index benefits from a diversification of strategies. The stocks held by the owner of this portfolio are not as well diversified as the stocks held by a pure indexer. In a larger sense, however, this portfolio may achieve greater diversification because the investor’s fortunes are not tied to the success of a single investing strategy.

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February 5, 2007 11:33 The Purpose of Money — Thinking Through the Basics

I’ve added an article to the “Start Me Up” section of the site entitled The Purpose of Money — Thinking Through the Basics.

Juicy Excerpt: There are also many fine money decisions being made today. The same middle-class workers who bemoan their inability to save have built fine lives for themselves and their loved ones. These people have what it takes to save effectively. What they lack is an understanding of how to go about it in a systematic way.

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February 6, 2007 07:50 It’s Not About Retirement, It’s About Empowerment

Wanderer wrote a tribute to the Glory Days of the Motley Fool board that should not be forgotten.

Juicy Excerpt: What a wonderful thing a network/community like this is!…. The connections explode exponentially as the nodes increase linearly.

And the topics, to me – a CPA, former manager in a global professional services firm, self-employed consultant, academic, world traveler, inveterate tightwad, idealist, pragmatist, dreamer – are like manna. The topics range from the mundane to the technical to the uplifting – it’s truly quite amazing.

Want to know about SEPPS? You’ve come to the right place! Safe withdrawal rates? You’re there! How about the insanity of corporate/modern/US life? Got that for you too!

….And to top it all off, for those of us in search of a little redemption for our jaundiced view of humanity, there are an incredible array of examples of courage, determination and passion. Parents, children, brothers and sisters, friends and colleagues. “Little people.” Anonymous cogs in corporate machines. Denizens of homogenous, alienated suburbs…. Each with the not-so-little idea that they each can make a difference, if not in someone else’s life, at least in their own.

These folks have the “little” idea of fomenting some private (or not so private) revolution of their own…. Years of unfulfilling, deadening work truncated and replaced by an opportunity to use our very limited time here in a joyful manner. Not pointless self-indulgence, not pointless self-denial, but in a manner that enriches ourselves and others.

There’s something inspiring about the dignity people take for themselves as they struggle against all those “givens” in life, against all the crummy institutions that want to keep them boxed-in and manageable.

….The message this board sends is a resounding “Hell no, we won’t go” quietly into that drone-like good night…. What we’re talking about here, really…is empowerment. More on This Topic

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February 7, 2007 06:39 A Behavioral Finance Approach to Picking Stocks

I’ve added an article to the “Investing for Humans” section of the site entitled A Behavioral Finance Approach to Picking Stocks.

Juicy Excerpt: Most investors love story stocks. That opens up an edge for those willing to seek out non-story stocks. Boring can be good.

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February 8, 2007 07:10 Family and Money — The Price You Pay

I’ve added a page to the “Practical Dreamers” section of the site entitled Family and Money — The Price You Pay. To kick things off, I’ve taken five items from the Post Archives for the blog and added them to the new page.

The titles to the first five items on this page are: (1) Financial Risks of Living Together; (2) When One Spouse Earns a Good Bit More Than the Other; (3) Is It Stingy Not to Cover Your Child’s College Expenses?; (4) How to Talk About Approaching Death and the Transfer of Assets; and (5) Joint Bank Accounts and the Marriage “Contract.”

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February 9, 2007 10:16 My Second Book

I am a long ways from finishing my second book. But I think I am far enough along to share with you some thoughts about the story it will tell when it is finished.

The title is: Investing for Humans: How to Get What Works on Paper to Work in Real Life. I think that will stick.

My first working title was: Why “Stocks for the Long Run” Is Wrong. That title focused on our findings about the failure of the now-dominant model of how stock investing works.

That changed to: I Get a Kick Out of Cash. I liked that one better because it is provocative and evidences a bit of humor.

I didn’t like the suggestion that the book advocates cash over stocks, however. The book advocates cash as a means to lower the overall riskiness of a portfolio at times when stocks are high-risk, but the message of the book is very much a pro-stock message. So I worked my way to the current title, which points to the bigger-picture theme, that it is our human emotions that cause us to fall in love with stocks at just the times when they are likely to cause the greatest damage to our financial-freedom quests.

The first book was the product of more than 12 years of research and thought. I had examined so many questions as part of the effort of putting together my own Retire Early plan that, when it came time to write the book, the hardest part of the job was organizing the wealth of material and deciding what could be left out. There was a time when I would have thought it beyond me to write a book on investing as I have not studied investing nearly to the same depth as I have studied saving. I am now confident that I have more than enough material for an insight-packed book of roughly the same power as Passion Saving.

There are still many investing topics that I cannot discuss intelligently. That doesn’t concern me anymore. What I learned during The Great Safe Withdrawal Rate Debate is that even the biggest names in the field possess only a rudimentary understanding of some of the most fundamental investing questions. This is a shocking claim, but it is a demonstrably true claim all the same. I understand the basics well, but am not so great on a lot of the fine points. Most of today’s experts understand the fine points well, but are not so great (or at least pretend not to be so great) on the basics. The basics matter most. So I feel today that I can make a valuable contribution to the literature.

The book will be the story of how I came to that surprising (to me too!) conclusion. I used to place far more confidence in the experts than their understanding of the realities merits. I now see that most of them are expert at the wrong things. They know things, to be sure. What they know is often not what the typical middle-class investor trying to figure out what to do with his or her money most needs to know. Today’s experts are doing a poor job of the assignment handed to them.

That’s largely because humankind’s understanding of what it takes to invest successfully for the long term is ill-developed. Looking at the thousands of books in publication on the subject, you would be led to believe otherwise. The sad reality, though, is that most of those books are rooted in the same misbegotten premise — that investing is primarily a rational endeavor. It’s not so. All analyses that assume it to be so generate findings that are wide of the mark.

It’s a strange story. We all need to know how to invest. You would think that humankind would have put more effort by now into the project of learning what it takes to invest successfully. We humans are a comical bunch. You never know what trouble we are going to get ourselves into next!

I’m writing the book on the assumption that prices will have fallen before it is published. The purpose is to tell readers why stocks have let them down and what they need to do to make sure that this never happens again. It’s a ghoulish perspective from which to be examining things. It’s like writing about a city that you know is going to be bombed. As you travel to the various places that you are writing about, you at times feel a desire to to scream out: “Can’t we save this?”

But you can’t, you know. Most of those who share your knowledge that bombs are going to fall have already left town. Most of those who remain don’t want to hear about it until an article turns up in the morning newspaper saying that the bombs have hit their target. More on This Topic

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February 12, 2007 10:36 What’s It All About, Amy?

In The Complete Tightwad Gazette, Amy Dacyczyn recounts the story of a vacation she took to a beach town. About three days into the week, she was so bored sitting in the sun that she returned home and went to work painting her barn. At the end of the day painting, she was happier than she had been on “vacation.” I like beaches, so I don’t take the moral of the story to be that one should avoid beach vacations. But I do agree with the thrust of the point she was making.

In my experience, engaging in hedonistic activities has a place. But the enjoyment of such activities is not always the same. If I have just finished work on some important project, I usually enjoy the beach a great deal. It’s a change of scenery and a stress reliever. It allows one to exercise muscles that haven’t been exercised for some time. For example, I might lie on the beach and think about future plans. Or I might go for long runs after having been stuck at a desk for weeks. This is what it means to recreate, in my view — to “re-create” one’s normal view of the world by balancing one set of activities (work to accomplish something) with a set of counter activities (pure rest, or sport, or goofing off).

On occasion, though, I have been frustrated by trying to re-experience an enjoyable hedonistic experience. One can’t force fun. If you try too hard to enjoy yourself, you end up miserable. Amy Dacyczyn is right that sometimes the most fun thing one can do is exert oneself, even in an activity that on the surface does not seem to promise much enjoyment. I can remember feeling very good after completing an exam that required weeks of non-fun preparation.

Many who work at corporate or government jobs are accomplishing little of value with their lives. I’m not criticizing them; they have to pay the bills, and they are not hurting anyone. But it just doesn’t follow to say that because someone pays you a lot of money to do something, the something is an activity of value to the world. Sometimes it is, sometimes it isn’t.

Many see early retirement as a challenge to their value system. They are right to see it that way. Early retirement is indeed a challenge to the value systems followed by many. I don’t think that the nature of the challenge is always perceived properly, however. Early retirement is not necessarily hedonistic. It can be. But early retirement can also be a quest for deeper purpose. Early retirement can involve running toward something as easily as it can mean running away from something.

The Retire Early Movement gives us new choices to consider. Some of us are going to make good use of those choices, some of us are going to make bad use of those choices. Some of us will see the good in early retirement (the freedom it promises) and turn it into something bad (a pointless existence). Some will see the bad in early retirement (the temptation to become overly hedonistic) and turn it into something good (a life of greater purpose than can be achieved in a corporate or government job). It’s just like us humans to respond to these kinds of opportunities and challenges in all sorts of mixed-up and confusing ways, isnt it?

Each of us has to decide for himself or herself how much “work” must be incorporated into the day to give a life purpose. I think that there must be some exertion of effort (some aspect of one’s life that is not hedonistic) for one to achieve a sense of genuine well-being.

A bit of thought is required, though, before one classifies an activity as purpose-directed or not. Days spent golfing can be days spent directed toward a useful purpose. A stretch of time in which you engage in a lot of golfing may help you recover from stretches of time in your past in which you engaged in no golfing at all. Golfing may over time help you discover new purposes to which to direct your life from new friends you make golfing or from ideas that occur to you while golfing that never would have crossed your mind were you chained to a desk.

Too much hedonism is a bore, in my experience. Staying shackled to a corporate ball and chain is a bore too. The healthy middle ground is engaging in money management practices aimed at helping you win your financial freedom as early in life as possible and then putting that freedom to uses which elevate you and inspire you and enrich you and make the world around you a better place in dozens of different ways.

Early retirement should not be viewed as an escape from the frustrations of the corporate workplace, but as the path to a life of even greater purpose and commitment and fulfillment and giving. More on This Topic

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February 13, 2007 13:27 An Old Friend Does His Part to “Save the Retirements!”

Ed Easterling (the author of Unexpected Returns) was my guest at a “A Special Event Discussion with…” thread at the Safe Withdrawal Rate Research Group board back in August 2003. He was generous with his time and kind in his interactions with us, and offered numerous fine insights that have been helping community members put together effective Retire Early plans ever since.

In e-mails with Ed, I spent a good bit of time explaining our community’s exciting safe withdrawal rate findings of the past five years. That effort has now paid off big time. Ed has written an article (Destitute at 80: Retiring in Secular Cycles) not only endorsing the New School of Safe Withdrawal Rate Analysis, but putting the safe withdrawal rate question in the proper perspective.

The safe withdrawal rate debate often comes across as something that would be of interest at “an economists’ tea party,” as one community member put it. It’s not that. It’s really about flesh-and-blood human beings and their flesh-and-blood hopes to secure financial security in their old age. It is a scandal that many of today’s best-known “experts” have failed to bring attention to the grave flaws of the conventional methodology studies and thereby have left at risk millions of retirements that could be saved if our findings were given the widespread publicity that they deserve.

Ed Easterling has done his part.

Juicy Excerpt: “The implication for today’s investor is that the likelihood of financial success in retirement is considerably less than most pundits are advocating. Twenty years from now, if the response is “who knew?”, it won’t be much comfort for retirees in the employment line at Wal-Mart. This is especially true since a rational understanding of history and the drivers of longer-term stock market returns can help today’s retiree to avoid that ‘surprise.’ I assure you that these are not fear-driven statements, but rather insights that are based upon history and the financial principle that valuation is a major determinant of future returns.”

You go, Ed!

I knew there was a good reason why I liked this guy. More on This Topic

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February 14, 2007 12:26 Saving Matters More Than Investing

John Greany has a chart on Page 17 of his Research Report entitled Drive Your Financial Advisor’s Porsche and Retire Before 40 that argues that effective saving counts for far more than effective investing for those seeking to retire early.

The chart examines an aspiring early retiree who is 25, earns $30,000, and earns salary increases of 10 percent each year. Assuming savings of 10 percent and an investment return of 10 percent, the chart reports that this worker will be able to retire in 50 years if he directs his salary increases to new spending. However, if he limits his spending increases to the rate of inflation and puts his raises into savings, he can retire in only 19 years.

How much would it help this aspiring early retiree if he were able to double his investment return to 20 percent? That would speed up his retirement by only four years, according to Greaney’s report. More on This Topic

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February 15, 2007 09:09 Eight Ways to Budget for Eight Budgeting Personalities

I have added an article to the “The Turned-On Budget” section of the site entitled Eight Ways to Budget for Eight Budgeting Personalities.

Juicy Excerpt: Budgeting does not have to be difficult. This approach probably does not take more than 20 minutes worth of time per month. But it does the job for a good number of Financial Freedom Community members.

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February 16, 2007 07:56 Bogle’s Big Mistake

I’ve opened a new section of the site entitled “Heroes and Villains.” This is where I will offer my take on today’s money experts.

The first article written specifically for the new section (I have also moved a few articles from other sections to the new section) is entitled John Bogle’s Big Mistake.

Juicy Excerpt: Say that you are trying to steer a boat through the ocean. You have checked a map and know that all you need to do to reach your destination is to continue sailing straight ahead. In short, you need to “Stay the Course!” You notice a change in the winds and in the currents. What is your response? Do you hold the wheel firm in the face of these changes or do your make gentle turns to the left or to the right to counter the effects of the changing conditions about you?

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February 20, 2007 15:50 About Our Unique Investment Return Calculator

I’ve added an article to the “The Return Predictor” section of the site entitled About Our Unique Investment Return Calculator. The article addresses ten basic questions about the new calculator.

Juicy Excerpt: The best explanation I can offer as to why most investors do not do this today is that easy access to the data and statistical tools needed to make effective predictions did not become generally available until recent decades, and, beginning in the early 1980s, the U.S. stock market entered a wild bull market that for many investors made it seemingly unappealing for a time to know how high prices affect the long-term value proposition of stocks. I expect to see calculators of this type become far more popular after we experience a big price drop.

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February 21, 2007 09:41 Banned at Morningstar!

I received word yesterday afternoon from the site administrator at that I have been banned from further participation at their discussion boards, including the Vanguard Diehards board, a board at which I have posted regularly for close to two years.

Let’s see now. I’ve been banned at Motley Fool. I’ve been banned at the Early Retirement Forum. I’ve been banned at I was banned at before it went belly up. I’ve now been banned at Are you beginning to detect a pattern?

Me too.

There’s not only one pattern to detect. There’s something else odd that keeps happening over and over again.

The Motley Fool site administrator was not able to identify a single post in which I engaged in any abusive posting whatsoever. The Early Retirement Forum site administrator was not able to identify a single post in which I engaged in any abusive posting whatsoever. The site administrator was not able to identify a single post in which I engaged in any abusive posting whatsoever. The site administrator was not able to identify a single post in which I engaged in any abusive posting whatsoever. The site administrator was not able to identify a single post in which I engaged in any abusive posting whatsoever.

What’s up with that?

I’ll tell you what Morningstar cited as the reason for its ban. The site administrator there said that I had engaged in “disruptive” posting.

To be “disruptive” generally means to engage in personal attacks, or to post off topic, or to in some way seek to inflame people for no constructive purpose. I obviously have never engaged in these sorts of disruption.

There is one sense, though, in which it can indeed be argued that I engaged in “disruptive” posting. Change can be disruptive, right? It would be fair to say that I have argued for Change with a capital “C” in how people develop their investing strategies.

If you have read more than one or two of the investing articles posted to this site, you know what I am talking about. At this site, we don’t calculate safe withdrawal rates in the way in which some people calculated them in earlier times. At this site, we advocate a form of market timing (long-term timing) that few investors have heard advocated elsewhere. At this site, we recommend asset allocation strategies not widely in use today. At this site, we even put forward new ideas as to what it takes to qualify as an “expert” in the investment advice field.

We’re the Doctor Pepper of personal finance web sites.

A bad thing? Or a good thing?

I think it’s a good thing. Do you want to know what I think about today’s conventional investing advice? I think it stinks. To high heaven. I think it’s got a foul odor about it and that it ought to be wrapped up in something strong to make sure that none of the yucky junk will touch my hands while I carry it out to the curb for pickup by the garbage men.

Oops. I’m not supposed to talk like that, am I? I might hurt the feelings of one of the Big Shots getting rich putting out the nonsense gibberish that passes as investment advice today.

All right. I’m done.

I very much oppose conflicts between people. That strong belief comes through in all of my posts.

I very much enjoy conflicts of ideas. That strong belief comes through in all of my posts.

I enjoy conflicts of ideas because it is through conflicts of ideas that people learn new things. Learning helps us. Learning over time makes us rich.

I don’t apologize for putting forward new ideas at the discussion boards at which I have posted. I have had thousands of people express gratitude for the ideas I have put forward on saving and investing, and I owe those people and any others like them who come along in days to come my best possible work. I’m not giving people my best possible work when I just reiterate some canned strategy I picked up from reading a magazine article. My readers deserve new and strong and enriching ideas and I do my best to provide them.

I bring Change to the boards I post at.

Some love it. Some hate it.

I love it.

The kind of disruption that I engage in is the good kind of disruption. Some people (I don’t mean regular readers of boards, I mean those who think of themselves as “leaders” with the right to determine what messages all others get to hear) have grown so fat, dumb and happy pushing ideas that maybe made a little bit of sense 10 years ago that they require some disruption in their lives.

I am grateful to the many people at the Morningstar boards who offered kind and constructive responses to my posts and who thereby helped me to learn. I did all that I could to help those people out by doing what was needed to have that board live up to its potential. I would do more for them if I could, but I cannot.

Let’s not let this get us downhearted. We’ve done good work together and there is a lot more good work that we need to be doing together in days to come. Let’s keep on doing. Let’s rock it!

Let’s —

Disrupt! More on This Topic

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February 22, 2007 09:38 Restaurant Tipping Tips

I’ve added a page to the “Saving Without Sacrifice” section of the site entitled Restaurant Tipping Tips — How Not to Impress Your Date.

Juicy Excerpt: The fact that your date will notice how much you tip does not mean that you should always be exceedingly generous with tips when on a date. Your date wants to know that you are charitable, so generous tipping is a plus. Your date also wants to know that you have enough self-confidence not to feel a need to impress her or him with such tactics. Going overboard can backfire. More on This Topic

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February 23, 2007 10:45 Boy Disease, and How Suze Orman Helps

I’ve added an article to the “Heroes and Villains” section of the site entitled Boy Disease, and How Suze Orman Helps.

Juicy Excerpt: This site is entitled “” There’s a tension between those two words. “Passion” is the girl word, “Saving” is the boy word. One is emotion, one is practical. One is exciting, one is grounded. One takes you who knows where, one is predictable….

Lots of my titles are like that. With “Retire Different!,” “Retire” is the boy word and “Different!” is the girl word. With “Practical Dreamers,” “Practical” is the boy word and “Dreamers” is the girl word. With “Investing for Humans,” “Investing” is the boy word and “Humans” is the girl word.

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February 26, 2007 07:10 Review of The Return Predictor (“Featuring the Highest Quality Sites on the Web”) has added a review of The Stock-Return Predictor to its page reporting on “The Best of the Best of the Finance Category.”

Here is the text of the review:

“This Stock Market Valuation tool on the site may take a long time to load, but we think it is worth the wait. The calculator is based upon the principle that over the long term, stock market prices will reflect the ten-years earnings growth of the underlying companies. While there may be blips here and there, ultimately prices will return back to a common growth pattern. As we write on 02/21/07, the probability is that the market will not be doing very well over the next ten, twenty, and thirty years. We are looking at most likely returns between 1% and 5%. Why? Because prices have been bid up so much that they they cannot be sustained. Using this calculator, it may be possible to find points in time when it is more likely that you will be able to expect greater returns. At this level, the calculator warns to be cautious.”

How did they used to put it on Hill Street Blues?

Be careful out there!

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February 27, 2007 10:01 Community Comments on The Stock-Return Predictor

I’ve added an article to the “The Return Predictor” section of the site entitled Community Comments on Predicting Stock Returns. This article provides snippets from the Vanguard Diehards discussion-board thread on the merits of the new calculator.

Juicy Excerpt: This opinion is from pages 33 and 34 of Common Sense on Mutual Funds by John Bogle — “This analysis takes into account my conviction both that the performance of individual securities is unpredictable, and that the performance of portfolios of securities is unpredictable on any short-term basis. While the long-term performance of portfolios is also unpredictable, a careful examination of the past returns can establish some probabilities about the prospective parameters of return, offering intelligent investors a basis for rational expectations about future returns.”

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February 28, 2007 07:37 Budgets That Work Distinguish Between Seven Types of Spending

I’ve added an article to the “The Turned-On Budget” section of the site entitled Budgets That Work Distinguish Between Seven Types of Spending.

Juicy Excerpt: Circumstance-Conditioned Spending is spending that could be viewed as good or bad, depending on the circumstances of the individual considering it. For example, spending on a high-priced car might be viewed as a bad idea if done early in life where it most damages efforts to reach early financial freedom. But it could be viewed as positive if done at a stage of life where high levels of financial freedom have been reached and where the life-affirming attributes of the automobile can be better appreciated by the owner.

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January 2007 << >> March 2007