The Two Components of Investing

 The Two Components of Investing

Investing is comprised of two parts:

1. MATH.
   Do your research. Learn about the market. Learn what the overall market does, and when. Try to find out why—not necessarily why it went up or down on a given date, but what powers the market to begin with.
    
   
   
   
   

Blog roundup May 2020

Blog roundup/interesting links May 2020

A great summary of the FIRE movement:
https://www.thousandaire.com/its-all-about-creating-income/

I've linked this before, but it's worth including again:
https://www.wealthwelldone.com/how-can-i-change-my-life/
     -And while we're using allegorical stories:
     https://froogalstoodent.blogspot.com/2017/01/a-tale-of-two-kingdoms.html

https://pixabay.com/en/stirling-castle-scotland-stirling-202103/

A sound planning session with Inspire to FIRE:
https://www.inspiretofire.com/recession-investment-plan/

The benefits of FI:
https://www.physicianonfire.com/the-benefits-of-financial-independence

Though I don't usually condone day trading, a little information about good, debt-free companies won't hurt. To that end, this is one part of a series on debt-free companies. I like the analysis, though it's not actually influencing my own investing decisions:
https://seekingalpha.com/article/4339254-debt-free-companies-of-s-and-p-500-jack-henry-associates

Some good guidance on how to handle a dip in the stock market if you're planning to retire soon; good advice to hear if you're worried about how the COVID-19 economic slowdown will affect your ability to retire:
https://www.moneytalksnews.com/retire-even-when-the-economy-heads-south/

Jim Collins is ALWAYS worth reading and considering. This one is particularly notable for a great line by Jon Older, in his 8:54 PM comment: "Like a famous person once said, money is like a bar of soap. The more you handle it, the smaller it gets." Great stuff!

https://jlcollinsnh.com/2020/04/14/part-xvii-b-etf-vs-mutual-fund-whats-the-difference/

How does Japan deal with its extreme population density, especially in Tokyo? Micro-apartments!

https://www.nippon.com/en/news/fnn20200211001/tokyo’s-micro-apartments-see-a-surge-in-popularity-the-secret-of-living-in-a-shoe-box.html

Another dose of sanity, this time from Mr. Money Mustache:

https://www.mrmoneymustache.com/2020/04/02/no-you-didnt-just-lose-half-of-your-retirement-savings/

-The money quote: "But in this situation, it really helps to understand the big picture of what is actually going on. The world is not ending. The air outside your windows is not a swirling cloud of certain death. All that has changed is that we are in a self-imposed economic slowdown that has been created purely to save the lives of our most vulnerable people. Which is one of the most compassionate things our society has ever done." [emphasis in original]

Interested in earning cash for taking surveys and providing companies with feedback on their products and services? One option is https://www.inboxdollars.com/, which is currently offering a $5 signup bonus!

Are Roth IRAs a rip-off?

Roth IRAs vs. traditional IRAs—What's the advantage?

A while back, I had a brief debate with Financial Samurai in the comment section of one of his articles. His position was that Roth IRAs are a rip-off. I disagreed.

I like Financial Samurai, and he has a ton of great info on his website! But sometimes, two people see things differently—the classic "reasonable people may disagree" argument. I believe that's what's happening here.

Picture Credit: https://pixabay.com/illustrations/list-demolition-spiral-notebook-rip-2836399/

So I'll try to explain why I hold my position on the matter, using extensive quotes from the original page at https://www.financialsamurai.com/disadvantages-of-the-roth-ira-not-all-is-what-it-seems/#comment-343071

Sam: "So you think the government sucks, and you don't count on SS benefits, yet you are willing to pay more taxes up front? I don't understand the inconsistency."

Me: "There is no inconsistency."

Roth IRAs aren't a scheme to take your money. They simply give you the option to pay taxes now, or pay them later. Let me spell it out:

"You think the gov. is awful with money? [It is.] -> The gov. is going to have to pay the piper eventually. Since the gov. gets its money from taxes, that means that tax rates will be raised on everyone, across the board. I'm not talking 2019, or 2022, or 2025. I'm talking 2040 or 2050.

"If, like some people, you plan to 'work'—generate income—for as long as possible, you might well be in a higher income bracket AFTER "retirement" than you were at the beginning of your career."

-Financial Advice for Young Professionals illustrates the mathematical equivalence between a Roth IRA and a Traditional IRA, with the comment shown below:

Let’s say you’re in the 25% tax bracket. If you contribute 5,000 to a Roth IRA that is the same as contributing $6,666,67(not $5k) to a 401k. So after 10 years, both get a 5% return.

Roth: 5000*(1+.05)^10 = 8,144.47
401k: 6,666.67(1+.05)^10 = $10,859.30*(1-.25) = 8,144.47

The amounts are exactly the same after the 401k is taxed 25%. Now where I argue for a Roth is that how do you know what this 25% will go up or down. There are two factors that affect this: gov. tax rates and your future income. Both of which I guarantee you cannot predict with 100% certainty. And when you can’t predict something with certainty, I like to diversify. Which is what a Roth IRA does.

What if Sam has 3 kids and they each have 3 kids and now he has 9 grandchildren living in CA? Would he trade being away from his family for saving 10% on taxes? Hard to say :)

Me: "So, bottom line:

1) You pay the taxes now, and let that money grow. Once you're 59 and 1/2 years old, you can take the money out tax-free.

OR

2) You invest now, pre-tax, and pray that the gov. doesn't raise taxes on withdrawals 30 years in the future, or that your tax bracket in retirement is lower than your tax bracket is right now.

"Either way, you're still paying taxes on the investments in your IRA! Choosing option 1) amounts to a bet that you'll live to at least 60 years old, you won't need the money before then, and that the government will eventually have to raise taxes to bail it out of its own foolhardiness.

"Option 1) gives you certainty: you KNOW how much tax you'll pay. In 2060, I have no idea how much tax I'll pay on my forced distributions from a Traditional IRA, 401(k), etc! So Option 2) is less desirable from that standpoint.

If you pay 25% in taxes now, and you think you'll have to pay MORE than 25% in taxes in 2060, then choose a Roth IRA.

If you pay 25% in taxes now, and think you'll have to pay LESS than 25% in taxes in 2060, choose a traditional IRA."

So, to wrap things up:

Basically, whether you prefer a Roth IRA or a traditional IRA depends on what you expect the government to do regarding taxes in the future.

• A traditional IRA means you expect your taxes to be lower in the future (either because your income will be reduced or because the government will lower your tax rate). Therefore, with this assumption, you'd rather pay later.
   
• A Roth IRA means you expect your tax rate to be higher in the future, so you'd rather pay now.

So are Roth IRAs a rip-off? As Betteridge's Law suggests, the answer is "no." Whichever option you prefer depends on your situation. Choose wisely!

***
Support the Froogal Stoodent blog by checking out these laptops or these headphones;
anything you buy will generate a small commission—at no cost to you! Thanks!

The Best Dollar Store

The Best Dollar Store

When it comes to low-price general stores, I've found that Dollar Tree is the best. Everything there truly is $1 or less!

• However, not everything at Dollar Tree is a good deal. For example, most of their food is overpriced compared to grocery stores—yeah, it's only a dollar, but the special small package means that Dollar Tree food often costs more per ounce than a similar product at a grocery store.
   
• For things like personal care items, decorations, Halloween costumes, microwavable plastic bowls, greeting cards, toys, etc., I really like Dollar Tree. For such items, durability isn't super-important, so Dollar Tree is a great low-cost, one-stop shop!
   
• If you need durable or high-quality products—especially electronics—look elsewhere. But Dollar Tree is a great source for everything from security envelopes to coloring books for kids, especially if you just want something inexpensive.
   
• I've been to Family Dollar, which is owned by Dollar Tree, according to the Bloomberg article above. Not impressed. Many of their products are ridiculously overpriced, and they aren't actually $1 (as the name implies)...the one time I went into Family Dollar to look around, I saw products that cost $8 or $10—products that I could have found elsewhere for less!
   
• Dollar General is a similar story. Not a great deal on many of their products.

So, in sum, Dollar Tree is the king of the dollar stores. Long live the king!

***
Support the Froogal Stoodent blog by checking out these laptops or these headphones;
anything you buy will generate a small commission—at no cost to you! Thanks!

Interesting links

Interested in football? In XFL 2020? In the entertainment industry? This is a quick but interesting read:
https://finance.yahoo.com/news/xfl-may-pull-off-something-no-league-has-before-but-week-3-is-critical-175105240.html

• On a related note, how much do XFL players get paid? https://www.sportingnews.com/au/nfl/news/how-much-do-xfl-players-get-paid-breaking-down-salary-structure-for-new-league/ez2tp2f528h11s65exqzrhm5g

Interested in cars? In Australia? After 150 years, Holden is going away. This is probably surprising news, unless you live in Australia or work in the automotive industry:
https://www.autoweek.com/news/industry-news/a31023811/saving-holden-would-have-required-billions-report-says/

The human body apparently isn't 98.6 degrees anymore:
https://elemental.medium.com/the-average-human-body-temperature-is-no-longer-98-6-f-c88c19716852

A way to calculate retirement age in each state. Keep in mind that each person's situation is different, but this is a good way for us FIRE enthusiasts to stay focused on the end goal:
https://finance.yahoo.com/news/most-realistic-retirement-age-every-100000297.html

Tips on how to save for the down payment on a home, directed especially at first-time homebuyers:
https://www.thepennyhoarder.com/home-buying/how-to-save-for-a-down-payment/

Ideas for passive income, the holy grail for investors:
https://moneydoneright.com/best-passive-income-ideas/

Do you have to work until full retirement? Not if you don't want to:
https://www.forbes.com/sites/ryanderousseau/2020/03/27/32-year-old-stopped-focusing-early-retirement-embrace-mini-ones/#5a7d0fe3420b

Which should I prioritize: my emergency fund, or my retirement? https://www.thebalance.com/average-retirement-savings-by-age-4155888

Blog roundup 2/9/20

Blog roundup Feb 2020

A great guest post from Jillian of Montana Money Adventures: https://jlcollinsnh.com/2019/01/08/i-wanted-the-unreasonable/

An inspiring story of visionary estate planning (!!!): https://ceplan.com/franklin_endowment

Libraries are great! https://lifeandmyfinances.com/2019/10/7-benefits-of-the-library-improve-your-finances/

Best laptop bargains 2019

Best laptop bargains

Here are 2019's best laptop bargains, hand-picked by The Froogal Stoodent!

You'll find everything from general-purpose to gaming laptops (but mostly general-purpose). The sweet spot is usually $400-500 for a good, reliable machine that will get the job done.

ASUS Vivobook F441 - $440
Amazon

• 8 GB of the latest DDR4 RAM 
• AMD A9-9425 processor 
• 256 GB solid-state drive (SSD) version highly recommended

ASUS Vivobook K570ZD - $650
Amazon

• 8 GB of DDR4 RAM 
• Ryzen 5 2500U processor
• 256 GB SSD

Are you a student who hopes to game on a tight budget? It's possible with this laptop.

Lenovo 330S-15ARR - $410
Amazon

• 8 GB of DDR4 RAM
• Ryzen 5 2500U processor
• 128 GB SSD

High-performance on a tight budget. It's also possible to game on this one, though with the tight storage requirements, I wouldn't recommend it.

ASUS X555QA - $350
Amazon

• 8 GB of RAM
• AMD A12-9720P processor
• 128 GB SSD ($350) OR 512 GB ($440)

I'd get the 512 GB one for $440 if I were shopping for myself.

Blog roundup 9/19/19

Links

It's been a while since I posted a financial blog roundup! Since I've been sitting on this one for several months, it's time to share:

Data isn't everything.
http://theirrelevantinvestor.com/2018/04/04/the-limits-to-data/

How early retirement can help you live longer (but may contribute to cognitive decline if you don't challenge your mind):
https://www.cnbc.com/2018/03/27/how-research-shows-you-can-live-longer-if-you-retire-early.html

Do you need an LLC for that?
https://www.abandonedcubicle.com/do-you-need-llc/

6 things I want my teenager to know about money:
http://www.familymoneyadventure.com/6-things-i-want-my-teenager-to-know-about-money/

Robert Kiyosaki is a salesman, not a financial expert, as this extremely thorough discussion demonstrates:
https://www.johntreed.com/blogs/john-t-reed-s-real-estate-investment-blog/61651011-john-t-reeds-analysis-of-robert-t-kiyosakis-book-rich-dad-poor-dad-part-1

• On a related note: https://johntreed.com/blogs/john-t-reed-s-real-estate-investment-blog/63395139-real-estate-b-s-artist-detection-checklist-part-1
• And https://abcnews.go.com/2020/story?id=1982669&page=1

How to tell the fake rich from the real rich:
https://www.moneymozart.com/how-to-identify-the-fake-rich-from-the-real-rich/

The Secret Rock Songs You Should Know!

The Secret Rock Songs You Should Know!

Do you like discovering awesome new music?

Are you a fan of Skillet, Breaking Benjamin, AC/DC, or other popular rock bands?

Then ooh, boy, have I got a real treat for you!...

Book review - The Age of Anomaly

Book review - The Age of Anomaly by Andrei Polgar

The short version: This book provides a perfect case study for why a good editor is worth his or her salary.

The Age of Anomaly is filled with valuable information and analysis, but the writing style comes across more like a YouTube monologue than a book. That is either an advantage or a disadvantage, depending on your preference. But at a certain point, I've had enough comments like "I'm sorry, but..." or "I just want to make very clear that..."

A good editor would suggest punchier alternatives, reduce repetition, and make these worthwhile ideas far more readable.

http://ageofanomaly.com/

The long version: Above, I criticized the writing style. It probably comes across harsher than I intend, because:

1. The author alludes to growing up in Eastern Europe. Writing an entire book in a language that isn't your native tongue is a pretty impressive feat! 
2. The writing style isn't really the main selling point of the book. He's giving you information, not writing a novel.
3. I'm extremely well-read. So I'm used to reading books that were written by professional writers and edited by experienced editors. The informal, conversational writing style of this book therefore got under my skin more than it would bother most other people.
4. I can see some of myself in this writing style. I have worked on [presently unfinished] books myself, only to cringe when I read over it later. Intellectually-inclined writers seem to be too wordy. That's why a good editor is worth more than even a hot stock tip!

The fact of the matter is that Polgar provides plenty of valuable information. If you can get past the writing style (or if you enjoy it), you'll find tons of useful information that you didn't already know.

Aspects of the book that impressed me:

1. A description of past financial bubbles, along with an analysis of their commonalities and differences.
        -Laying this information out in the span of about 100 pages is extremely helpful, in my view.
         A+ for this section! This segment alone justifies buying the book.
2. Polgar encourages readers to embrace uncertainty. A wise approach, even if it's not a popular one. 
3. He provides very specific advice whenever possible.
4. An evaluation of a wide variety of assets, from precious metals and real estate to cryptocurrency, web domains, and antiques.
5. A levelheaded analysis of assets like cryptocurrency and web domains. While I'm more reserved about cryptocurrency than Polgar, I recognize that it does have some advantages. His point about its exceptional portability is well-taken!
6. He donates a chapter to mental resilience. A good thought! I'm not sure how good the execution was, but at least he draws the reader's attention to the importance of being flexible and strong--important qualities for a wise investor!
7. On a couple different occasions, he warns against "prepping."

So, overall, the good information and thorough analysis make this book a worthwhile read, even if the writing style may leave something to be desired.

As an extended example of Polgar's writing at its best, he opens with this catchy introduction:

"You’ve probably heard the reasonably famous story about how if you place a frog in cold water and gradually increase the water’s temperature, the frog won’t notice it’s being boiled alive. Well, that is just a myth. Frogs are
apparently smarter than we give them credit for and as University of
Oklahoma’s Dr. Victor Hutchinson and others pointed out, they’d simply
escape in such a scenario. 

For humans, however, the metaphor fits like a glove. 

But what’s this metaphor all about anyway? Simply put, it tells us our reactions to gradually unfolding threats is slow or even non-existent. If you see a man carrying a gun running toward you, running away seems like the natural thing to do. But if the gunman goes about it in a less obvious manner, the likelihood of you running away decreases. If he’s really good, he might even manipulate and befriend you, thereby getting close to a victim who welcomes him with open arms. 

In his The Black Swan book, Nassim Taleb gives an eloquent example:
  “A turkey is fed for 1,000 days by a butcher, and every day confirms to the turkey and the turkey’s economics department and the turkey’s risk management department and the turkey’s analytical department that the butcher loves turkeys, and every day brings more confidence to the statement. But on day 1,001, there will be a surprise for the turkey…” 

… but what does all of this have to do with my book? 

The Age of Anomaly has one purpose and one purpose only: enabling readers to prepare for future financial calamities by helping them become better and better at spotting anomalies on the one hand and on the other hand, helping them be more resilient in general. Contrary to popular belief, you don’t have to be brilliant to land on your feet after a financial crisis, you merely need to stop being outsmarted by frogs. The most frustrating aspect (to me, at least) about what I like to call economic anomalies is that they’re anything but subtle. In hindsight, they seem blatantly obvious but what exactly about them is it that makes otherwise rational individuals ignore clear warning signals? 

In my opinion, it all revolves around an extremely effective numbing
mechanism. We don’t notice blatantly obvious anomalies mostly because we don’t want to. And since we don’t want to notice them, we perhaps
subconsciously choose not to. I’ll kill two birds with one stone by making an
analogy to a “relative” of the turkey through yet another myth: that ostriches
bury their heads in the sand in a reality-defying attempt at hiding from
predators. 

Hint: they don’t but we do."

If you're interested, you can find the book at Amazon, among other sources.