Saturday, October 30, 2010

The Power of Less...

The book of the week was The Power of Less by Leo Babauta. This book is about having a very simple and efficient focus on work and life. The idea is to have higher productivity and live a more 'zen'-like life. The author, Babauta, even has a blog entitled Zen Habits.

I only have one tip for you this week. The book is very consolidated and a lot of the ideas in this book might help it's reader, but I the only one I find will help everyone is the concept of batching. Batching is consolidating emails, voicemails, and calls into one or two times a day. People get in the bad habit of checking emails and voicemails several times a day. Anytime they have a couple minutes between projects they go in and see if anything has changed within their inboxes. At the very most with this type of habit, you'll have one email each time you check it, if any at all, and then you'll spend a few more minutes composing a response. The main thing that makes this unproductive is the effect it has on your focus. If you have a project to work on and you work diligently and are in 'the zone' the whole time, you get more done and produce better results. If you stop to make yourself distracted every hour or two, you nearly have to start from scratch in terms of creativity and momentum.

When you batch emails and voicemails, you pick the minimum number of times possible dip in to your outstanding communications. I use two times for voicemails and one time for emails a day, at 10am and 4am I check voicemails and at 6pm I check emails. This way it consolidates the work into a good number before I spend any amount of time digging into it. Again, batching phone calls is very productive and depending on what you do you should combine this task with a different activity. You will inevitably be taking phone calls periodically throughout, and potentially have to make certain 'important' calls too. However, there are a lot of calls that are optional and those should all be written down and done later on. I do a lot of driving, so I have these calls written down to be made when I am on the road. Other people I have talked to go on walks every morning and they make calls when they are taking their walks. It's a good way to kill two birds with one stone and be as productive as possible with your calls in the process.

I thought this was a good book. There is a lot of a bullet point format throughout the book, which shows the author practices what he preaches with using 'Less.' If you think you could use a little less stress and a little more simple in your life I recommend you check out this book. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.

Friday, October 15, 2010

The Only Guide You'll Ever Need for the Right Financial Plan...

The book of the week was The Only Guide You'll Ever Need for the Right Financial Plan by Larry E. Swedroe. That is quite a mouthful... It's a pretty good book. It is jam packed with information too, and it explains everything with just the right amount of detail.

I think what I'll do is a couple small segments on things that Swedroe writes about. Let's go ahead and discuss Active vs. Passive Management, Roth vs. Traditional IRA, and College Savings Plans. All things things are more thoroughly discussed in the book. I'm just going to do my regular cliff-notes version.

Active vs. Passive Management

If you are a regular reader, you probably know where I stand on this issue. Passive Management is the best way to go hands down! Active Management means that you have a person actually picking stocks and trying to beat the market, it is still spread across lots of securities, but again, someone is trying to beat the market picking and choosing.  Passive Management is run by a computer that distributes stocks across whatever portion of a market you invest in.... for example the American Beacon S&P 500 Index  is a blend of the S&P 500 index. This passively managed index fund will automatically readjust when the market changes.

Actively managed funds are more expensive because you have to pay more for the fund managers 'expert' advise. And since passively managed funds are ran by a computer, there is a much lower expense ratio. To show a comparison. The passively managed fund above has an expense ratio of .15% (pretty typical of passively managed funds). The average actively managed fund has an expense ratio of 1.5%. That means that if you invest in an actively managed fund, not only does it have to beat the market (which is what a passively managed fund represents) but it has to beat the market by 1.35%. And over the long-term, only 5% of actively managed funds can beat the market. And in the short-term only 50% can beat the market. The choice should be pretty simple given the facts... don't let Wall Street sell you on what you don't really need.

Roth vs. Traditional IRA

Again, a lot of you know where I stand on this issue as well. I stand by Roths vigilantly. Roth IRAs are accounts that you invest in after taxes have already been assessed on your income and when you take the money out, when you retire, you take the money and all the interest earned tax free. Traditional IRAs are accounts that you invest in before taxes and you get taxed once you withdraw the money including any interest it accrued, again at retirement. The idea of going one way or the other is where you will stand with your tax bracket when you retire compared to where you are now. Most people think that when they retire they will be in a lower tax bracket because they will not have much in terms of income when they are retired. I think that logic makes sense if nothing changes within the US monetary policy or inflation for the next 40-50 years. But if you look at historical trends, taxes have steadily increased. In the 1950s income taxes were between 1-6% and now we are looking at anywhere from 25-33%. I think given historical trends that taxes will more than likely increase in the next 40-50 years. That being said, it would make more sense to invest primarily in a Roth.

I do however, think that it makes complete sense to invest in a 401(k) if your company offers any type of match. If it were me, I would max out the matched amount by my company and then put everything else into a Roth... potentially maxing out the Roth- which as of 2010 is $5000.

College Savings Plans

If you want to put away money for your kids college and achieve some tax benefits today it makes sense to invest in some sort of college investment account. But what kind??? Swedroe does a wonderful job in this book explaining all the different types of college savings types and the pros and cons associated. The one that makes the most sense financially is a 529 plan... pretty much every state has these plans now. However, I also like Coverdell Education Savings Account. The 529 plan is awesome because the federal government doesn't count it toward the parent or the students finances when figuring up the EFC- expected family contribution. The EFC is a magic number that says how much money you can receive in federal financial aid. The federal calculation is that the child's assets are treated as different than the parent's. The child must contribute 20% of his or her assets each year towards expenses and the parents must contribute 5.6% percent of their total assets. So... If the 529 plan doesn't count toward either of their assets, it makes the student look more favorable to receive money from the federal government. The Coverdell Account is great because it is a tax-advantage account like the 529 plan, but it can be used for educational expenses for grades K-12 as well as college, not just college like 529. So... it's a nice way to save yourself some tax dollars. The only down side to a Coverdell is that there is a $2000 cap per year per beneficiary.

Alright... Well I hope I gave you guys some good information from this posting. The book has a lot of information and although I don't agree with all of Swedroe's opinions on investing I agree with most and I learned a lot from him. This book does a good job living up to it's title. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.

Saturday, October 9, 2010

Abraham Lincoln...

The book of the week was Abraham Lincoln by James M. McPherson. I thought I would do something different this week and read a biography. My intention was to read it and find an aspect from that leader's life and write about incorporating it into your life. Turns out this idea didn't quite pan out the way I intended.

What I can tell you is Lincoln was a pretty great guy. He was honest and intelligent. He had a number of great speeches and his Emancipation Proclamation was vital for America to be the great country it is today. The problem with pulling out ideas from Lincoln's history to use in today's business world, is that the world is a different place. I feel it is much more difficult to differentiate yourself in today's world than it was back then. No longer does a college degree assure you a great job and a nice salary. Being the smartest person in the room no longer means you will be the most successful. In fact, a gaggle of the richest men in the world are college dropouts.

After realizing the large differences that face our two worlds, I decided that I would like to talk about one aspect of Lincoln's leadership that is absolutely transferable into leadership today: The ability to control emotions. To have control over one's emotions has an incredible effect. If you wear your emotions on your sleeve the people working with you will never want to give you 'bad' news. However, if you have the same demeanor when you are upset as when you are mad then it will be very easy to have open communications with you. It is extremely difficult to master the art of controlling your emotions... There are a couple ways to do this. I'll give you my method, as well as, Lincoln's.

My Method

My extremely simple approach to not losing my cool is to have a 'big picture perspective' all the time. Having a big picture perspective is just what is sounds like... I look at everyday from a 2-3 month perspective. I handle all things in the present, but when 'bad news' comes I always put it in a 2-3 month perspective. So I ask myself if this bad news will be anything I will still be concerned with in 2-3 months, or is it even something I'll remember hearing. More often than not, any bad news you'll receive is inconsequential in the big scheme of things. I feel there is no reason to get stressed or make someone feel bad for something that doesn't have that big of an affect. People make mistakes every day, and usually they learn from them. If you lose your temper every time you hear about a mistake, no one will learn anything.

From the first day you are with any organization be a Rock. Encourage the professional development of every person within your organization. Make sure that when the day comes that you have to leave that organization, you can look back and see the impact you've made. Because if you don't encourage that development and make your people better, the organization won't evolve, and neither will you. And organization must evolve to keep up. Don't be a caveman.

Lincoln's Method

Lincoln was just like anyone else, he got mad. But no one could ever tell he was mad. This was because Lincoln would write "hot letters"- they were just angry letters with how he felt and then he would put them into his drawer and never send them. It was his was of taking all the anger and getting it out of his system.

Whatever system you use, just make sure you aren't that volcano of emotions within an organization. Be remembered for the right things.... helping people grow professionally and helping an organization evolve.

This book was pretty good. I know a whole lot about Lincoln now and it was written very well. Typically biographies aren't my thing, but I wasn't disappointed. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.

Saturday, October 2, 2010

The Wall Street Journal's Complete Money and Investing Guidebook...

The book of the week was The Wall Street Journal's Complete Money and Investing Guidebook by Dave Kansas. It's kind of an embarrassing week. I didn't even realize that I had already read this book until I finished the first chapter. I suppose there was a reason everything seemed familiar...

It is a real 'back to basics' week. This book is a really good one to have handy on the shelf (I don't know what happened to my first copy). It gives a really great basic approach to everything in the world of money and investing... from Exchange Trade Funds to Money Creation this book covers it all.

I was thinking all week what I would do for this book in terms of this blog. Sure I could do a laundry list of money and investing terms and give the definitions, but that sounds extremely dull.. I don't know if I could get through typing it without taking a nap, let alone forcing you all to read it. Instead, what I would like to do is talk about inflation and money creation. Both are covered in this book with a basic amount of detail, but it really makes sense right now because I expect we will see more and more inflation in the upcoming years. In the past year silver, one of my favorite commodities, has gone from a low of $14.98 to this week hitting a record high of $22.09. Who else has seen a 30% yield in an investment this year? Not many. (This is the best scenario possible, more likely you would have purchased silver at $16-17, however, that is still about a 20% yield).

This all has happened while the dollar has dropped in value. There are a number of ways to evaluate the value of the dollar. These are the CPI, the GDP Deflator, the consumer bundle, the unskilled wage, the compensation of production workers, the GDP per capita, and the GDP. This may indicate to you that there really isn't a great way to establish this value. The most popular number to gauge inflation by is the CPI although many people question it's reliability. A large cause of inflation comes from increases in the Money Supply. If new money is put into an economy without doing an even trade for old money then all the money that currently existed is worth less than it did previously. Simple supply and demand... the more of an item there is the less it's worth. We have had a bad habit in the US of creating new money and "stimulating" the economy artificially. The idea behind a stimulus is that we pump billions of new dollars into an economy and everyone will take that money and start buying new 'things' and when new 'things' are bought then more people will need jobs because we need to make more 'things.' It doesn't work because in a poor economy based on debt driven society people are more likely to pay off old debt than buy new toys. So the US has been injecting the economy with dollars and because the majority of those dollars didn't go to create any new jobs or create any new society switch for our economy we are on the road to see massive inflation.

When hyperinflation hits a country it starts very subtly. Then it picks up and you'll see prices for items raise a couple times a week, then a day and then hourly. When it starts salaries start to increase with it, but eventually it happens too fast and salaries can't increase at the same rate. Anyone that owns that country's currency at the end is out of luck. Other countries that experienced hyperinflation, the currency toward the end is used as kindle for fires because not only can the countries residents not afford to pay for their heat, but the money is worth less than anything else that might be burnable. However, if you are invested in other things outside that currency; real estate, commodities, other currencies, you'll be better off because those items will most likely increase in value while the currency depreciates. Here is a list of countries that have experienced hyperinflation- including the US in 1861.

Angola 1991-1995

Argentina 1975-1991

Austria 1921-1922

Belarus 1994-2002

Bolivia 1984-1986

Bosnia-Herzegovina 1992-1993

Brazil 1986-1994

Bulgaria 1996

Chile 1971-1973

China 1948-1949

Free City of Danzig 1922-1923

Georgia 1993-1995

Germany 1922-1923

Greece 1942-1944

Hungary 1945-1946

Israel 1970-1971

Japan 1948-1951

Krajina 1992-1993

Madagascar 2004-2005

Mozambique 1977-1992

Nicaragua 1987-1990

Peru 1988-1990

Philippines 1942-1944

Poland 1989-1991

Romania 1998-2005

Russia 1921-1922 and 1992-1999

Turkey 1990-1995

Ukraine 1993-1995

United States 1861-1865

Yugoslavia 1989-1994

Zaire 1989-1996

Zimbabwe 2004-2009

Hyperinflation is a worst case scenario, however, I like to always be prepared. It does not hurt to invest outside the dollar anyway because regardless of whether we experience hyperinflation or not, we will experience some inflation and they will increase in value with respect to the dollar.

I hope that was a little less boring than definitions. The book is good. It gives you a little taste of everything out there. It's a easy and fun read. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.