My Personal Finance Journey

Category Archives for Invest & Retire

Google Gmail and Calendar vs. Microsoft Outlook – Which Is Better For Productivity?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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It’s pretty amazing to me to think about how much the world’s usage of technology and telecommunication has changed in such a short time since the year 2000. When I graduated high school in 2004, almost nothing related to school was accessed online. The teachers didn’t communicate with students via email, BlackBoard, Collab,  or other online document/course management systems. In fact, I think the only reason I ever used a computer back then was either a) to chat with my friends using AOL Instant Messenger or b) type up reports whenever it was absolutely required! In fact, AOL seemed like it was one of the only popular Internet and email providers.

Now, it’s hard to find people with an AOL email address (I still have one, but all that it receives is about 20 messages of SPAM per day). Furthermore, the AOL service is now free, instead of paying $30 per month like we used to.

My my how times have changed. When I graduated from college in 2008 from the University of Arkansas, I had four email accounts – 1 from college, a Gmail account, a Yahoo account, and my old AOL account. The professors communicated everything via email and online course management systems – from class notes to exam grades and coordinating meetings. I even had started and run an eBay selling business! However, at this time, I still was only checking my email maybe once or twice a day. Why? Because I didn’t seem to receive that many emails.

After college in 2008, I started my first job as an engineer with a large publicly traded pharmaceutical company. It was then that the use of email become very widespread for me, with me having the temptation to constantly check it during the day. In fact, I found myself at times purposely ONLY checking it 2 times during a day in order to maximize productivity (see Getting Things Done by David Allen and The Hamster Revolution for more details on this)

During this time, my eyes were opened to (a new tool for me at least) the Microsoft Outlook email/calendar/task management software. At the company I worked for, nearly everything was managed through Outlook: there was a handy dandy directory in Outlook that told you everyone’s contact info as well as their physical work addresses and supervisors, it was used to reserve rooms for meetings, and was used to manage email.

Since my exposure to Microsoft Outlook 4 years ago now, I have been able to compare Google’s Gmail and Calendar features to Microsoft Outlook head-to-head. As such, the purpose of today’s post is to share some of my thoughts about these two products so that you can determine whether Gmail or Outlook is better for you. 

Comparison of Calendar Capability – Google vs. Outlook

In my opinion, Google’s calendar and Outlook’s calendar are fairly similar – probably because Google modeled their calendar after the features that were tried and testing in Outlook. Below is a summary of the similarities and differences:

Similarities

  • Both allow you to create and schedule events (either one time or recurring), invite attendees, and program reminders as pop-ups on your screen. 
  • Both allow you to share calendars with others. 
  • Both allow you to view your calendar in multiple formats – daily, weekly, etc. 
Differences
  • Google calendar allows you to program email reminders. Also, you can program reminders beyond the maximum 2 weeks allowed in Outlook. 
  • Google calendar also features a “search” capability, making you able to search all of your events.
  • Outlooks allows you to work “offline” more easily than Google does, in my opinion. However, Google does have offline browser apps for Gmail and Calendar now. 
  • Outlook allows you to drag and drop EMAILS directly from your mail to your calendar. This is very handy for me since it is easy to see what the email chain contained when an event pops up on my calendar. 
  • Next, Outlook’s Calendar content is stored on your computer, not online like Google is. This can be either a plus or minus, depending on how you look at it. 


Verdict – In my opinion, both Google and Outlook’s calendars are good, so I recommend using both. 
However, because I really like the Outlook drag and drop feature, I choose to mainly operate, add, and manage events through Outlook. But, you can easily take advantage of the features of Google’s Calendar by simply using the handy Sync function developed by Google to automatically copy all events between the two programs. 

Comparison of Email Capability – Google vs. Outlook

Overall, I think most would agree that Gmail and Outlook have a very different ‘feel’ when it comes to how each program handles email. On one hand, Gmail is very rapid, and allows for you to shoot off many emails within a minute, while Outlook requires a few more clicks with multiple reply screens needing to pop up, and then you have to click the Send/Receive button to send the email right away. Listed below are some of the similarities and differences between the two programs:

Similarities

  • Of course, both enable the user to send and receive emails, mark the emails as read or unread, and create folders in which to place emails. 
  • Both seem to have good SPAM/Phishing controls, which prevents the automatic downloading of external new content that could potentially harm your computer. 
  • Both allow email notifications on your desktop, if you desire. However, I personally don’t recommend this because it can distract you from the current task you are working on in favor of checking your email. 
  • Both allow you to have a signature below every email you write. However, there are some differences here. See the Outlook section below.
  • Both have Out of Office Notification capability. 
  • Both allow you to send mail using other email addresses that you own/control.
  • Both are ‘searchable,’ meaning that you can search folders for specific words or email addresses. However, as you can imagine, Google is a little better/quicker at this search feature than Outlook I think.  

Differences – Email Features Provided by Gmail

  • Has the Gchat feature, which is good for people wanting to communicate quickly with other people online. Webcam conferencing is also possible with Gmail, as well as calling people on the phone. 
  • Has the “Conversation View” feature, which appends conversations of the same topic within the same window. 
    • Personally, I hate this feature. I am never able to find WHERE in the window the newest email letter is, unless I search for it for about 3 minutes. 
    • The other option to this is to turn off the Conversation View, which is not any better because it doesn’t place old emails in the same chain within the same window, making you unable to view the progression. 
  • Gmail has an auto-forwarding feature, which allows you to automatically have any new messages sent to your account to another account. This is great for enabling you to maintain multiple email accounts, but only having to actually log in to one every day. 
  • With Gmail, all emails are backed up online, away from your local computer. This is a good thing for safety. You also have 10 GB of free storage space, in addition to your Google Document/Drive folder. 

Differences – Email Features Provided by Outlook

  • Unlike Gmail, when you click “reply” on Outlook, it simply copies the text from your current email chain below the new message you are writing. There are no tricks to finding out what order the emails were sent. 
  • Signatures. 
    • Simply put – I love the signatures feature in Outlook. Not only do I have my contact information in my signature, but I also have about 15 common email responses pre-typed in these email signatures that save me loads of time/pain each week. 
    • Gmail does have a somewhat new “Canned Responses” feature that is similar to this in Outlook. However, when I tried it, the canned responses had to be entire previous emails, not just a specific copy/pasted text like in Outlook. I think that Google will eventually improve this, but for now, I found Outlook to be better for this purpose. 
  • Folders.
    • The folder capability in Outlook is extremely flexible and truly maximizes my organization abilities. 
    • First, you can create as many folders as you want, and unlike Gmail (where they are “hidden” and you have to click ‘view more’ through in indiscernably organized list), the folders are very easy to view on the sidebar of the screen. You can view an example of the folders I have set up in the picture below:
   
    • In addition, in each Outlook folder, you can either specify that you’d like to display the total number of items or the total number of unread items. This ‘total number of items’ display feature is especially useful for actionable folders (like the ones with the @ sign shown above) because even though I have already read all of these emails, they still need a response/follow up, so I don’t want to lose sight of them. 
    • Lastly, with Outlook folders, you can drag and drop emails from your inbox in to the proper folders. With Gmail, you have to click a drop down menu and select the destination folder from a somewhat long list. This takes up more time than is necessary in my opinion. 
  • Outlook can connect and download email from web-based email services, such as Gmail and Yahoo, using POP and/or IMAP protocols. 
  • Control How Often You Send/receive Email and Go Offline.
    • Another thing I like about Outlook is that you can specify how often (if ever) that your emails are automatically downloaded. This can be as much as every 30 seconds to every 30 minutes, or never, if you set Outlook as offline. 
    • For me, I only like to read my email several times throughout the day so that I don’t get distracted from being strategic about the order that I tackle things to do. 
    • So, what I do is set Outlook to stay “offline” and just manually send/receive my email when I am ready by pressing the F9 button.  
  • Change Arrangement of Screen Elements.
    • With Outlook, it is very easy to change the orientation of the email reading pane and folders. 
    • For example, I like to have my reading pane on the right side of the screen. However, you can also have it on the left or on the top. 
  • Mark Comments in An Email.
    • Another cool feature of Outlook is that it allows you to (if you desire) automatically mark comments in a previous email in a different color text. This is particularly useful if you are reviewing someone’s proposal or responding to a list of questions posed in a previous email.  

Verdict – In my opinion, for maximizing productivity for folks that receive 50-200 emails per day (not uncommon in today’s working world), Microsoft Outlook is head and shoulders above Gmail because of the customization options available. In particular, the capability that Outlook provides with folders, signatures, and logically appending past email text is much better for people that are short on time.


On the other hand, Google’s Gmail is slightly ‘quicker’ at sending individual emails, and as such, is well suited for people that receive only a couple emails every day and do not need all of the hierarchy of organization with folders, etc. 


In fact, in order to have the benefits of both Gmail and Outlook (email and calendar), I would actually recommend doing what I do and have a Gmail email account/address, but operating all of your email and calendar activities on a day-to-day basis through Outlook. This is very easy to set up using the POP/IMAP downloading and Calendar Sync features discussed in the previous sections. By doing this, you can have the Gchat, auto-forwarding, and online backup of all emails (even ones sent through Outlook) while keeping the organization of Outlook.

How about you all? Do you use Gmail (or another online email provider) or Outlook to manage your email and calendar on a day-to-day basis? Which do you think is better and why? 


Share your experiences by commenting below!

    ***Photo courtesy of http://www.public-domain-image.com/cache/objects-public-domain-images-pictures/electronics-devices-public-domain-images-pictures/computer-components-pictures/black-computer-keyboard_w725_h483.jpg

    What is the Highest Expense Ratio You Pay On the Mutual Funds You Own? Plus a Comparison With the National Average

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    Click here to enter my free $76.18 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is May 31st, 2012.

    Several months ago, I posted the following poll on the top left of the sidebar on My Personal Finance Journey for readers to respond to:

    What is the highest mutual fund expense fee/ratio you pay on the funds you own?


    There was a great response to this question, and it was very interesting to learn about you all’s fund-buying tendencies. Shown on the pie chart below is a break-down of the responses that were received broken down in to 7 expense ratio fee categories.

    Overall, it was great to see that the expense ratio category that received the largest number of responses was the 0.1% or less category. This is great news! This means that most of you all, like me, have chosen to resist active mutual fund management and instead invest the smart way (passive investing) by using index mutual funds or ETFs! In fact, almost 1/2 of all of the votes received indicated that people paid less than 0.5% as the highest expense ratio for their mutual funds. Wonderful!

    Comparison with the Rest of the United States – Average Mutual Fund Expense Ratios


    As I always like to do when I analyze the result of polls here on My Personal Finance Journey, I figured it would be interesting to see how the responses compare to the current mutual fund expense ratio averages seen in the United States. 
    According to the Investment Company Institute in a study published on April 23, 2012, the average mutual fund expense ratio paid by US investors in 2011 was 0.79%, or 79 basis points. 
    Taking this in to consideration, the pie chart below shows how the MPFJ reader responses compare to this 0.79% average. As you can see, 62% of the readers on MPFJ pay less than the national average. Again, this is great news! 

    However, there was 38% of the reader responses that indicated paying over this national average. What this indicates is that there is still a very significant opportunity for people to save money by selecting different mutual funds in order to minimize their costs.

    But, Isn’t Paying a Higher Mutual Fund Expense Ratio (Above 0.79%) Worth it if the Fund Has Outperformed the Market for the Last X Number of Years?

    In short, the answer to this question is unfortunately ‘no.’ 

    Higher expense ratios or front-end/back-end sales loads are often rationalized by actively managed mutual funds as being ‘worth it’ because the fund has outperformed the market in the last X number of years by X%.   Examples of this include the American Growth Mutual Fund and the CGM Focus Fund.

    While this train of logic sounds good (after all, in most other professions, if someone has performed well in the past, you’d expect good performance going forward), it has been proven time and time again in nearly every investing book I have read that this logic simply doesn’t work in the investing world because there are too many external variables that the fund manager cannot control.

    For more reading on this, I’d recommend reading A Random Walk Down Wall Street, What Wall Street Doesn’t Want You to Know, or Stocks for the Long Run by Burton Malkiel, Larry Swedroe, and Jeremy Siegel, respectively.

    But, the good news is that there is a simple way to avoid paying these high costs for mutual funds – using passively managed index mutual funds or ETFs. For example, the average expense ratio of all Vanguard mutual funds is only 0.20%, with Vanguard index funds having an average expense ratio of only 0.16%. By selecting any of these types of funds, you can save yourself and your family big money and allow your long-term savings to compound more quickly.

    How about you all? What is the highest mutual fund expense ratio you pay on the funds you own? Is it above or below the national US average expense ratio of 0.79%?


    Do you typically employ active management or passive management in your mutual fund selection? Why do you choose one or the other? 


    Share your experiences by commenting below!

    What is Long Term Care Insurance?

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    Click here to enter my free $76.18 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is May 31st, 2012.

    The following is a guest post. Enjoy!

    What is Long Term Care Insurance?
    If you’ve listened to any of the popular television financial advisors, the topic of long term care insurance has been mentioned numerous times.  Usually, it is brought up when individuals and families are looking at estate planning, or children are worried about their parents getting older.  The reason is long term care insurance covers things that are generally not covered by regular health insurance, Medicare, or Medicaid.  Instead, long term care insurance focuses on providing care when you’re not sick, but may not be able to perform the basics of everyday life, or need some type of assisted living care.

    What Long Term Care Insurance Covers

    Long term care insurance is designed to help cover the costs of providing long term care: such as dressing, bathing, eating, walking, or more.  This type of care can be provided in a variety of ways, such as through home care, assisted living facilities, adult day care centers, hospice care, nursing homes, or Alzheimer’s care facilities. 
    Long term care insurance usually also provides for a care-giver (either visiting or live-in), companion, therapist, nurse, or possibly a housekeeper.  Depending on the policy maximum, care can be anywhere from visiting at a pre-determined interval to 24 hour care.

    Why Long Term Care Insurance Can Help

    Many individuals look for long term care insurance because it is currently estimated that about 60 percent of individuals over the age of 65 will require at least some type of long term care during their lifetime.  Furthermore, once long term care is actually needed, it may be difficult to get long term care insurance.  That is why many people seek it out while they are young.
    Also, many individuals may not want to rely on their children or family for support, or they may feel like they are burdening them.  As such, long term care insurance can help cover the out-of-pocket expenses associated with getting long term care. Without long term care insurance, the cost of having these services may quickly deplete the savings of the individual, and they could end up a ward of the state or dependent on their children or family after all.  

    How about you all? Have you ever thought about getting or know anyone that has long term care insurance? Do you think this type of insurance is worth the money? 


    Share your experiences by commenting below!

      ***Photo courtesy of http://s0.geograph.org.uk/photos/24/68/246875_2523ec81.jpg

      What’s Your Magic Number?

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      Click here to enter my free $46.95 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2012.


      Recently, I was exposed to an interesting new online personal finance savings and life goals realization tool, called MagicNumber.com. And today, I wanted to share a my experiences in trying it out with you all. 

      What is Magic Number?

      At first glance at the Magic Number home page, it appears that (as the name implies) the site specializes in helping you figure the amount of money you’ll need to make work optional in order to live the lifestyle that you want at a specific target age. However, I soon found out that Magic Number offered much more than this. In fact, I think MagicNumber.com can best be categorized as a general life goals realization/execution tool, with a focus on personal finance. 

      Overall, Magic Number has two primary features:

      1. Guides you through calculating the amount of money you need to make working optional at a specific target age and then allows you to set goals to reach this target.

      2. Facilitates execution of other general life goals that are important to you at a core values level.

      How Does MagicNumber.com Work?

      Listed below is the overall flow of how Magic Number works:

      • Upon landing on the MagicNumber.com homepage, you enter 1) the age at which you want work to become optional, and 2) your email address.

        • For me, I set this age as 50 years old. 

      • Next, you enter what values are important to you in life. 

        • For example, standard of living, career vs. family focused, active vs. relaxed lifestyle, social vs alone time.

      • Then, you are taken through a total of 8 screens to help you figure out your Magic Number, or the amount of money you need to have saved up to live the lifestyle of your dreams by the age you entered on the homepage.

        • The 8 screens that you are taken through are summarized below:

          • Dream home price

          • Dream transportation purchase price

          • Amount of money you’ll spend per month for the lifestyle you dream of

          • Amount you want to spend per month on hobbies

          • Amount you want to spend per year on vacations

          • Amount you want to donate per year to charity

          • Amount you want to have leftover to will to others once you die

          • Your current net worth

        • Each screen features a simple slider toolbar to adjust the amount of money you think you’ll need for each category. An example of the lifestyle screen is shown below. 

        • The idea here is to get a very general/quick gauge of the amount of money that will be required for a certain lifestyle.

        • The Magic Number that was generated for my inputs was that I needed to have ~$9 million by age 50.

      • After generating your specific Magic Number, the system will display a screen similar to the one below, detailing the daily, monthly, and yearly savings goals that are needed in order to obtain your Magic Number amount by your set target age.
        • Once the system generates these numbers, I’d then recommend doing a “reality check” to make sure that your savings goal is achievable given your current salary and financial condition. 
        • If these two things don’t align, you can then go back and re-evaluate your Magic Number if needed. This was the case for me, since as you can see below, the savings target of $11,000 per month is not possible given my current graduate school salary.   


      • Next, the Magic Number system will take you to a screen similar to the one shown below where you can enter other general life goals that you have based on your core life values. You’ll also specify target achievement dates for these goals.
        • For me, this was fairly similar to the exercise I go through twice per year where I evaluate my life values and life dreams.
      • After specifying each life goal, my favorite feature of the MagicNumber tool comes in to play. Important Note: Using this feature involves a fee. See below for more details. 
        • What I mean by this is that Magic Number then helps you break down an execution plan for your life goal by (after starting with your long term goal) first setting 3 year goals, then 1 year goals, then 90 day goals, then immediate actions you can take. You also specify achievement dates for these as well.
        • An example of this feature’s online interface is shown below.
        • For me, this is a very powerful feature since many times (even though I do a goals review twice a year), I sometimes forget during the “day-to-day hustle and bustle” about the interim steps I can be taking to achieve my long term life goals.
        • After entering each interim goal and the target date for each respective action approaches, you’ll then also see alerts for these “upcoming actions” in your account dashboard interface.

      How Much Does Magic Number Cost to Use?

      Certain parts of MagicNumber.com are free to use, and other portions are not. For example, you can generate your Magic Number savings goal and enter your other general life goals in to the system for free.

      However, in order to use the goal achievement breakdown and tracking tool shown in the last picture above, there is either a monthly or yearly fee, as described below:

      • $95.67 per year
      • Or, $9.97 per month 

      What’s the Bottom Line?

      Overall, Magic Number is a fun and easy-to-use online tool (everything is a very visually intuitive) to help an individual 1) determine how much money will be needed to achieve the lifestyle of their dreams and 2) to realize other general core life values goals through continuous monitoring and tracking of interim action steps.

      As such, Magic Number if well-suited for people that have specific goals they want to achieve, but often find that they arrive at the end of the year without having made significant progress since they got busy with everyday life.

      How about you all? Have you ever heard of or tried out MagicNumber.com? If so, what did you think of it? 


      If not, how do you track your overall life goals and how frequently do you review your progress?


      Share your experiences by commenting below!

       Important Note: This review was sponsored by MagicNumber.com. However, the opinions and perspectives represent my honest review of the product. Thanks for reading – Jacob

        ***Photo courtesy of http://farm4.static.flickr.com/3032/2574833687_30cbd81acd.jpg

        The Case Against Passive Investing

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        Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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        The following is a guest post by Rick from Invest In 2012. Enjoy! 

        The Case Against Passive Investing 

        I’m not much of a passive investor myself, as I like to get in and out of markets within just a few weeks. But with all due respect, I do know some people who are wealthy and are also passive investors. So, taking their opinions into consideration, here’s my case against passive investing.

        As a trader, passive investing is unappealing to me in two ways.

        1) Your portfolio rises and falls with the markets. Naturally, I want every single one of my trades to be profitable, so I can’t stand following the market’s ebbs and flows.

        2) Patience has never been a big virtue of mine. I might be able to wait up to a year for the right opportunity to come along, but no more than that. I can’t just watch my portfolio sink 30% in one year. I feel like I have to do something about it.

        But a lot of people are passive investors because they simply don’t have the time to invest actively. Fine. But still, I don’t think passive investing is very effective. Here are it’s flaws.

        Advocates of passive investing often cite the “over 40 years, the stock market moves up”. That sounds great, but if you think about it, who can hold on to an asset for 40 years? Even 30 years seems like a stretch. Most passive investors and mom and pop investors don’t hold for 50 years; they hold for 10 at most. The reason why markets fall and rise in extreme volatility is because it’s very painful to hold onto a stock for 10 years and not realize any gains, so passive investors are lulled into selling at market lows!

        And even if passive investors do intend on holding a stock for 40 years, many of them simply can’t! While some people have the capacity to ride out an economic storm and buy on the dips, the majority of Americans can’t. The next time the recession hits, or the next time they’re out of a job: they have to make ends meet at home. Considering that the American savings rate is so low, the only way to rustle up some instant cash is to sell their equities portfolio! And as chance has it, you’re most likely to be out a job at the bottom of a recession, when (non-coincidentally), stocks are also at market lows. Talk about bad timing. Passive investing asks you to buy when the market dips. And when the market dips badly, unfortunately, most passive investors (who work at a job during the day) don’t have any cash to buy!

        Also, stocks (just like everything else in this world) have cycles, usually lasting 15 years. Fifteen years of good times, and 15 years of bad times. So what happens if you get out of college, land a job, plan to start investing, but the beginning of a 15 year recession hits? You’d have to have the stomach to hang on during those 15 years and not see any profits! There’s going to be a lot of really scary market crashes, which is why the end of a market crash is usually signalled by the panicked selling by a lot of buy-and-holders (no offense to the buy-and-holders out there).

        So let’s assume that you are a passive investor, and you’ve actually had the guts and the capability to sit back and hold on to your portfolio for 30 years. Now, you’re 57 years old, and close to retiring. All of a sudden, the country plunges into a recession, and BOOM, 50% of your retirement fund is wiped out in a flash. At your previous annual growth rate of 7%, how long would it take for your portfolio to climb back above pre-crisis levels (adjusted for inflation)? A long time. Hence, it is not surprising that soon-to-retire passive investors were among the hardest hit in the 2008/2009 financial crash. While the young guy still has 20 or 30 years to grow his retirement fund, the soon-to-retire guy doesn’t!

        For every market winner, there’s a market loser. For every dollar made, there’s a dollar lost. Warren Buffett once said “If you don’t know who the fool in the game is, it’s probably you.” If a laid back, passive investor is making money, who’s the one that’s losing?

        And above all, as a passive investor, your fate is in the hands of the market. You’ll be completely exposed to the ups and downs of the market.

        How about you all? Do you follow a passive or active management style in your investing strategy? Why do you choose one method or the other? 


        Share your experiences by commenting below!

        Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

        • Thanks for this insightful guest post, Rick! Even though I’m pretty devoted/convinced passive investor myself, I always like to hear different perspectives.
        • My thoughts on the various arguments mentioned in the post are listed below: 
          • Since I realize that I have a fairly biased perspective on this topic, I welcome any and all feedback in the comments section below! 
        • However, before we get started, I just wanted to point out that passive investing (at least as I have learned it) does not actually involve buying and holding individual stocks. Instead, this is avoided by purchasing shares of index mutual funds or ETFs that represent the entire market through a target asset allocation.
          • With this distinction in mind, let’s continue.
        • @ Reason #1 why passive investing is unappealing -“1) Your portfolio rises and falls with the markets. Naturally, I want every single one of my trades to be profitable, so I can’t stand following the market’s ebbs and flows.”
          • While it’s absolutely true that with passive investing, you do have to bear the ups and downs of the market in a controlled way (through a target asset allocation – more on this in a second), this argument is not convincing to me because history has shown time and time again that it’s HIGHLY unlikely that an individual person (or even investing professional) will have the foresight to make money 100% of the time on their trades, or even a high enough percentage of the time to make enough to stay ahead of the market returns over long term periods. 
          • I’m not going to say that this never happens (i.e Peter Lynch, Warren Buffet), but it is rare, and it’s even harder to predict ahead of time who these investing magicians will be.
        • @ Advocates of passive investing often cite the “over 40 years, the stock market moves up” –
          • From what I’ve seen so far, I do not believe you need 40 years in order to realize the benefits of passive investing over active investing.
          • Sure – a long period of 20 years may be needed in order to realize the historical average return of the stock market of around 10%, but I simply am not convinced that by using active trading, you can guarantee that you will make that kind of return either. 
          • Thus, the main benefit (in my mind) of passive investing over active investing is that it saves investors from being their own worst enemy because history has shown that people are not able to time the market and/or buy and sell individual stocks in a way that enables them to beat the market return.
        • @ “Most passive investors and mom and pop investors don’t hold for 50 years; they hold for 10 at most. The reason why markets fall and rise in extreme volatility is because it’s very painful to hold onto a stock for 10 years and not realize any gains, so passive investors are lulled into selling at market lows!”
          • I had two general comments that came to mind when reading this portion of the article.
          • First, I think that my experiences have been fundamentally different than that described above. I know people that do hold on to index mutual funds in their retirement accounts for very long term periods, and so I am convinced that people have the resolve to do so. 
          • Second, while it is true that the markets do rise and fall in a volatile nature, as a passive investor, the risk you expose yourself to is done so in a manageable way (in my opinion). 
            • How is this done?
            • Easy – through target asset allocation percentages. 
            • By choosing a mix of index investing instruments from different asset classes ranging from volatile (equities) to more secure (fixed income securities), you are able to control how much risk you expose yourself to. 
            • For example, if you are the 57 year old soon-to-be retiree and are using an intelligent life cycle asset allocation plan recommended in any quality passive investing book, you will have no where near 100% stock exposure at that point in your life. Thus, you will not lose 50% of your assets overnight because the majority of your money will be in fixed income assets. 
        • @ “And when the market dips badly, unfortunately, most passive investors (who work at a job during the day) don’t have any cash to buy!”
          • Two arguments for this statement:
          • First, one could say that this reasoning applies to active stock picking too. If the market is going down and your stocks have dipped as well, you’re not going to have excess cash either.
          • Second, the overall goal of passive investing is to maintain a set/target asset allocation at any one time between various asset classes (fixed income, real estate, equities). 
          • So, in the case of a market dip (a big decrease in equity prices), what would actually happen is that your fixed income and other asset classes would become too large a percentage of your portfolio. So, what you would do is actually sell those shares to buy more equity shares during the dip. In this way, you wouldn’t be drawing upon new money in order to buy more equity shares.
        • @ “Also, stocks (just like everything else in this world) have cycles, usually lasting 15 years. Fifteen years of good times, and 15 years of bad times. So what happens if you get out of college, land a job, plan to start investing, but the beginning of a 15 year recession hits? You’d have to have the stomach to hang on during those 15 years and not see any profits!”
          • Personally, I have never heard of recessions lasting 15 years. 
          • For example, let’s say that you landed your first job and started investing right when the recession started around Summer 2008 (actually, this was when I got my first job out of college).
          • If you used typical dollar cost averaging in order to invest money in your retirement fund in passive investing instruments each month, it would not have taken too long at all to start seeing a return on the shares that were purchased at very cheap prices during the market bottoms of March 2009, etc. 
          • In other words, I don’t think that it takes 15 years to see results from following the periodic investing strategy that most passive investors employ when saving for retirement. 

        ***Photo courtesy of http://www.flickr.com/photos/twobears2/4252297559/sizes/l/in/photostream/

        The Permanent Portfolio by Harry Browne – Component Returns Correlation Analysis and My Future Plans

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        Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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        This past Monday, Flexo from Consumerism Commentary was very gracious to feature a guest post written by me analyzing whether or not investors can/should use the late financial adviser, Harry Browne’s, Permanent Portfolio asset allocation strategy as a way to obtain market-beating returns. If you haven’t yet read the post, you can stop by and have a look at the link below:

        Can Investors Use The Permanent Portfolio to Beat the Market?

        In order to improve the ease of reading and keep the focus centered in the guest post, I decided not to include several side analysis portions of the original piece I put together when I was researching the Permanent Portfolio topic. As such, the purpose of this post will be to fill in some of these gaps and give some added information on the following subject areas relating to the Permanent Portfolio that were not included in the guest post:

        • A correlation coefficient matrix analysis of the returns of the various components of the Permanent Portfolio I defined the the Consumerism Commentary guest post.
        • An explanation of my future plans for using the Permanent Portfolio, given the conclusions I arrived at in last week’s guest post above.

        What is the Permanent Portfolio? – A Quick Review

        For those of you that are hearing about the Permanent Portfolio for the first time, I just wanted to give a quick review about what it involves/does not involve.

        • Permanent Portfolio Goal:  There are two types of money – money that you can afford to lose and money that you cannot afford to lose. The goal of The Permanent Portfolio is to provide safety and stability to the money you cannot afford to lose in any economic climate.

        • There are four broad movements to cover pretty much any economic climate – prosperity, inflation, tight money/recession, and deflation.

        • The Permanent Portfolio is a passively managed asset allocation strategy constructed by components in such a way that at least one component is favored by any of the broad movements mentioned above. The Portfolio components are as follows, each carrying equal weight for as long as you hold the Portfolio:

          • 25% in stocks, which do well in times of prosperity. Harry recommends that an investor select three index mutual funds to make up this portion of the portfolio. However, index mutual funds and ETFs have improved in recent years, and I now believe that an investor could do this quite effectively with a single fund. It’s important to note that he only mentions that the components should “represent the entire market.” He did not specify whether or not this meant the entire international stock market, or just that of the US. We’ll touch on this more below:

          • 25% in gold, which does well in times of inflation, in the form of buying actual bullion coins. 

          • 25% in bonds, which increase in price during times of deflation, in the form of actual 30 year year long-term US Treasury Bonds. 

          • 25% in cash, which does well in times of tight money/recession when interest rates rise. Harry recommends investing in a money market mutual fund that invests only in short-term US Treasury securities.

        • Rebalancing – Harry recommended that the portfolio be rebalanced once a year back to the 25% allocation targets, but only if a specific component is greater than +/- 10% off from target. 

        Before we move on, I think it’s important to realize that Browne’s goal for creating The Permanent Portfolio was not, in fact, to create a strategy that would beat the market; it was to provide safety and stability to the money you deem that you cannot afford to lose.


        “Refined” Permanent Portfolio Component Return Correlation Coefficient Matrix Analysis


        In the guest post, after reviewing existing studies that have analyzed the Permanent Portfolio and defining areas where I’d like to improve the analysis to make it more convincing to me personally, I examined the performance of the “Refined” Permanent Portfolio (consisting of the components listed below) compared to a 100% stock and 75% stock/25% bond portfolio.

        • 25% in stocks – Vanguard S&P 500 Index Fund (ticker symbol: VFINX).
        • 25% in gold. Vanguard Precious Metals and Mining Fund (ticker symbol: VGPMX).
        • 25% in bonds. Vanguard Long-Term Treasury Fund (ticker symbol: VUSTX).
        • 25% in cash. Vanguard Short-Term Federal Fund (ticker symbol: VSGBX).
        However, aside from overall return performance (shown in the Consumerism Commentary guest post), yet another very fascinating aspect of The Permanent Portfolio from a Modern Portfolio Theory and diversification perspective is that it’s one of the most diversified portfolios one could possibly find.

        What does the fact that this “Refined” Permanent Portfolio is highly diversified indicate for investor returns? Essentially, this means that the returns of each of the components of the Portfolio (stocks, bonds, precious metals, and cash) move in directions independent of one another. In other words, when one of the assets is going down in price, another one is increasing or staying the same, thus preserving your capital as an investor. Perhaps not by coincidence, this is exactly what Harry Browne was aiming for when he constructed the Portfolio components. 

        This diversification can be readily observed by examining the table below. Shown in the table are the correlation coefficients of the respective annual returns of the various “Refined”  Permanent Portfolio components (measuring the extent to which the annual returns are related) over the past 20 years. Values that are further from 1.00 indicate lower degrees of correlation between the returns of each component.

        As can be seen in the table below, the majority of the components have correlation coefficients between each other of less than 0.20, with three of the relationships having negative correlations. The highest correlation coefficient is 0.68 between the two fixed income assets, long-term bonds and short-term bonds, which is somewhat to be expected since they are in basically the same asset class/family.



        My Future Plans With The Permanent Portfolio

        After performing the analysis and listing my conclusions in the Consumerism Commentary guest post, I ultimately conclude that I believe few investors (myself included) will have the resolve to stick with the Permanent Portfolio strategy long-term, due to the low correlation that the strategy has with the overall stock market.
        As such, I do not plan to fully adopt The Permanent Portfolio in my investing strategy. However, I was intrigued enough by this technique and convinced of its efficacy to adopt it in a smaller manner.

        Listed below is how I have adopted this technique to my investing strategy in this limited fashion (test run) using <1% of my overall investing funds. 

        It’s important to note that since I’m adopting this investing strategy using a relatively small amount of funds, I elected to use ETFs instead of mutual funds, since ETFs do not carry the $3000 minimums that many mutual funds do. 
        • Stock Portion –  17.5% of portfolio funds invested in the Vanguard Total Stock Market ETF (ticker symbol: VTI) and 7.5% of portfolio funds invested in the Vanguard Total Int’l Stock Index ETF (ticker symbol: VXUS). These ETFs invest in securities in a manner that tracks the performance of the broad US and all-world ex-US stock indices, respectively, and therefore, represent the entire market, as Browne intended.

        • Gold Portion – 25% of portfolio funds invested in the iShares Gold Trust ETF (ticker symbol: IAU). This ETF’s goal is to match the price movements of physical gold bullion. I had considered using the other gold ETF, GLD, but I found that it’s expense ratio was higher than the iShares ETF. 

        • Bond Portion – 25% of portfolio funds invested in the Vanguard Long-Term Gov’t Bond Index ETF (ticker symbol: VGLT). This ETF tracks the price movements of an index of long-term (>10 years) US Treasury and US Government agency fixed-income securities

        • Cash Portion – 25% of portfolio funds invested in the Vanguard Short-Term Gov’t Bond Index ETF (ticker symbol: VGSH). This ETF tracks the price movements of an index of short-term US Treasury and US Government agency fixed-income securities.

        Since adopting this “test run” of the Permanent Portfolio in mid November 2011, it has returned ~3.5% vs. a ~13% return of the S&P500, but with nearly half of the volatility/standard deviation, as would be expected with the Permanent Portfolio. It will be interested to keep following the progress of this small test run of the Portfolio! 
        The complete set of calculations of the historical performance of the “Refined” Permanent Portfolio, correlation coefficients matrices, and price history of the proposed ETF Permanent Portfolio analyzed in this post and the Consumerism Commentary guest post can be accessed and downloaded at the Google Docs Spreadsheet link below: Note: All performance data was sourced from Yahoo Finance.

        How about you all? What are your thoughts about The Permanent Portfolio strategy and concept? Do you think that it will continue to perform well in the next 20 years?

        Do you feel it’s something you would implement in to your investing strategy, given the body of evidence available? What do you think about my idea to give it a small test run?  


        Share your experiences by commenting below!

        Carnival of Passive Investing # 15 – What Passive Investing Is and Is Not – February 2012 Edition

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        Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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        Welcome to the February 2012 (the 15th total!) edition of Carnival of Passive Investing – a monthly collection of the best and most intelligent passive investing strategy articles around the internet! Some people foolishly want to beat the market (want being the key word), but we just want to invest with it.

        As discussed in my introductory post for this carnival, the purpose of this carnival is two-fold:

        • To provide a forum to showcase articles and research in passive investing strategies (i.e. investing in ETFs, index mutual funds, etc. in such a way that one avoids employing active stock picking). By investing with the market, we are able to beat 70-80% of investment “professionals.”
        • To create a community of passive investment bloggers to connect and share expertise.

        It’s crazy to think that it’s been exactly a year since I last hosted an edition of this Carnival that I started back in December of 2010. We’ve had some really great guest hosts over that time, and it’s been fun to watch the Carnival evolve. A big thanks goes out to everyone who has helped out! I deeply appreciate it! 

        Over the past year, I’ve noticed that we’ve gotten a lot of submissions that center around topics that are closely related and/or sound like passive investing, but do not quite fall in to this specific category of investing styles/personal finance interest and therefore, have to be excluded from the final selection of the carnivals. 


        As such, I thought it might be nice to make the theme for this month’s Carnival as showing several examples of topics that are and are not passive investing to keep this distinction fresh in our minds. This isn’t meant to point fingers or criticize anyone, but rather is simply for the sake of continuous improvement to our focused goal here with the Carnival of Passive Investing. 

        Please enjoy and stop by my blog on my non-carnival days as well.

        Listed below are this month’s top 4 editor’s picks!

        1. Nick presents How NOT to invest posted at Step Away from the Mall.

        In this article, Nick takes a look at several things. First, he analyzes how much extra time it takes to do the research necessary to attempt to outperform the market and points out how for most smaller investors, the added return this will give (if any) is often not worth the time commitment. Second, he discusses the dangers of following the advice of market pundits in the financial media on the direction of the markets in the future. 


        2. Echo presents How Index Funds Compare To Equity Mutual Funds posted at Boomer & Echo.

        Echo presents a direct comparison of the performance of active vs. passively managed mutual funds from the same asset classes over the past year years. The results strikingly show that the passively managed index funds not only have lower fees, but also significantly outperform the actively managed funds when considering the growth of a $10,000 initial investment.


        3. Dan presents International Bond ETFs posted at High Yield Edge.


        Interesting article here about international bonds/bond funds! Right now, my fixed income investment asset allocation only includes US securities. However, I’ve often wondered if there are any additional diversification benefits of expanding this to foreign fixed income securities as well. Any one have any thoughts on this? 


        4. Money Counselor presents Stock Sell Signal? posted at Money Counselor, saying, “BlackRock co-founder, Chairman, and CEO Larry Fink is a billionaire. Does that mean he’s a great stock price prognosticator? Evidently, no.” 

        While this post isn’t about a specific passive investing strategy, I really liked the graph that shows the levels at which Larry Fink predicted that the stock market was set to take off. One of these times was March 13th, 2008, and we all know where the markets headed shortly after that date. If the CEO of Blackrock apparently has trouble predicting the direction of the market, it seems like it would be even harder/impossible to do so for average investors like me. This is why I choose to stick with a passive investing strategy instead of trying to time the market.


        Congrats to our 4 winners this month! Listed below are the rest of this month’s spectacular passive investing articles!

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        Passive investing is not – Analyzing/selecting individual dividend stocks to generate passive income. Passive income actually has nothing to do with a passive investing strategy. Passive investing also does not relate to creating passive income through starting a blog, affiliate marketing, or sales of products.
        _______________________________________________________________________________________
        W. Wise presents The 10 Commandments of Growing Wealth posted at Wealth and Wise.

        _______________________________________________________________________________________
        Passive investing is not – Assessing where the market will go in the future, even if it involves predicting the direction of an entire index, such as the S&P500. 
        _______________________________________________________________________________________

        Steve presents My Secret to Get Rich Quick (Enough) posted at Money Infant

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        Passive investing is not – Analyzing the activities involved in renting out a real estate property you own. However, assessing how a passively managed real estate REIT or index mutual fund might or might not fit in to your asset allocation would fall in to the category of passive investing.  
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        Teacher Man presents Should You Invest In Individual Stocks? posted at My University Money. 

        _______________________________________________________________________________________
        Passive investing is – Investing with the market through the use of proper asset allocation, index investing, ETFs, portfolio rebalancing due to market fluctuations, asset class evaluation, controlling investor emotions, etc.
        _______________________________________________________________________________________

        LivingInVol presents Mad Skillz [part 1] posted at Living in volatility, saying, “A reality check for the difficultly of active trading.”


        Well, that wraps up this month’s edition. A big thanks to everyone for participating! 


        You can submit your passive investing posts for the March 2012 edition of the Carnival of Passive Investing (hosted by Free From Broke) by clicking the link below:


        Blog Carnival HQ – Carnival of Passive Investing – Submit Your Posts

          ***Photo courtesy of http://images.cdn.fotopedia.com/flickr-2200500024-hd.jpg

          Welcome Consumerism Commentary Readers!

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          Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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          Click here to enter my free $141.20 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is February 29th, 2012.

          Welcome Consumerism Commentary readers! Thanks so much for stopping by my site by way of the my guest post today over at Flexo’s blog listed below. As the picture to the right shows, I’m very happy to have you here! 🙂

          Can You Use Harry Browne’s Permanent Portfolio in Your Own Investing Strategy to Beat the Market?

          If you’re stopping by my site for the first time, I just wanted to give a little guide towards what I offer here, since information overload can occur quickly and time is our most valuable asset.

          To introduce myself, my name is Jacob. I started this site back in January of 2010, and since then, have poured my heart and soul in to the site to produce a product I am proud of and I think adds value to the world. You can read a little more on my background and even see a picture of me on the “About” or “First-Time Visitor” pages to find out more about us.

          WHAT I WRITE ABOUT HERE AT MY PERSONAL FINANCE JOURNEY

          In short, I like to offer actionable personal finance advice with the goal of achieving long-term success. 

          Specifically, I really enjoy writing about the following areas (I’ve also listed several posts related to each topic in case you’re interested in reading more):


          ARTICLES SIMILAR TO MY GUEST POST TODAY AT Consumerism commentary


          Additionally, if you liked the theme (investing strategy / asset allocation analysis) of the guest post I wrote for Consumerism Commentary today and are interested in similar posts I’ve written in the past, you might want to check out the ones below:


          WAYS TO STAY IN TOUCH WITH NEW CONTENT


          If after sampling some of the content above you think that my posts will add value to your life, there are many easy ways to stay in touch with new material when it goes up! See below for details:


          10% MONTHLY BLOG INCOME GIVEAWAY

          Also, each month, I give away 10% of any income I make from this site, with 5% going to blog readers and the other 5% going to a charity selected by the grand prize winner. You can read about all of the details by clicking here.

          So far, we’ve given away:

          • Current total given to charity = $334
          • Current total given to blog readers = $345


          If you want to enter in to the February 2012 giveaway for $141.20, click here. It ends February 29th!

          Thanks for visiting! Keep on learning!

            ***Photo courtesy of http://farm1.static.flickr.com/47/173590997_4f6930be15.jpg

            Carnival of Retirement # 7 – Retirement Statistics – February 20th, 2012 Edition Edition

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            Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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            Click here to enter my free $141.20 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is February 29th, 2012.

            Welcome to the 7th Edition of the Carnival of Retirement. If you want to submit a post for next week’s edition, please use the submission form. Next week’s edition will be hosted by Money Reasons.
            Retirement is a long-term game. There are so many things you need to do to prepare for retirement, and it’s not just saving and investing. Of course, having a great retirement portfolio is best, but to get there, we need to live within our means and build wealth along the way. This edition includes many retirement articles along with posts that will help us get there.  Enjoy these great posts from around the Internet!


            Also – since this is the Carnival of Retirement, I’ve added in several statistics that describe the current retirement landscape in the United States. Looking at the current picture, it seems that retirement is a topic that needs to be taken very seriously if people want to live well in their ‘golden years.’ So, it’s definitely good to have a carnival that brings this topic in to the limelight.
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            Retirement Statistic # 1 – Currently, 35% of people over the age of 65 rely in an almost full capacity on Social Security alone for retirement needs.
            ________________________________________________________________________________________


            Top 3 Editor’s Picks


            1. Kacie from Sense to Save published How much should you save with each paycheck to reach retirement goals?, saying, ‘Will saving 10-15% for retirement be enough for you? Or, say you’re maxing out retirement accounts, but got a later start. Will that be enough? Calculate how much you’ll need to save with each paycheck to hit your nest egg target.’


            2. MMD from MyMoneyDesign published Which is Better – Points or No Points on Your Mortgage?, saying, ‘Will buying points when you get a mortgage or refinance save you a lot of money, or should you pass on them? I’ll show you how to calculate the difference and share my Excel worksheet to help you decide for yourself!’ 


            3. A Blinkin from Funancials published Loyalty is for Losers, saying, ‘Remember years ago, when you could walk into a bank or a bar and they would greet you by name? If you visited an establishment enough, you would be known as a regular. This is not a desired outcome and here is why.’


            Note from Jacob – This is a cool post because it definitely has been my experience that in the journey to retirement (whether it be working at a company, the bank/brokerage to accumulate retirement savings, or where to take out insurance policies), you almost seem to be indirectly penalized by staying in one place. For example, in my experience, one of the quickest ways I’ve seen to get a raise/promotion is to switch the company you work for. In addition, I’ve seen that if you stay with the same bank or insurance company, your rates tend to increase year to year (or you have fees tacked on). However, if you switch banks/insurance companies, you seem to get an immediate price decrease. 

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            Retirement Statistic # 2 – In today’s society, each retired person’s benefits are contributed to by 3.3 workers, down from 16 workers per retiree in 1950.
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            And, listed below are the rest of this week’s great submissions! Enjoy!

            Dr Dean from The Millionaire Nurse published A Million Bucks? In My 401K? Ya Gotta Be Kiddin!, saying, ‘It’s not rocket science. It doesn’t take a street smart investor. How do you get a million bucks in your 401K? Read on, brother.’

            Evan from My Journey to Millions published Never Assume a Person Has a Completed Estate Plan, saying, ‘Testamentary intent should be the most important goal but that is predicated on the fact that some form of estate planning is actually gets done!’

            Marie from Money Spending Mommy published 6 Reasons to Update Your Will, saying, ‘Perhaps you, like many others, believe that once your will has been drawn up, that’s the end of the process. While wills have never been anyone’s idea of fun, it’s important to review your will on a regular basis. There are many reasons to pull out your will and give it a thorough review. Here are some of the most common reasons:’

            Peter from Bible Money Matters published Lending Club Returns Continue Upward Trend at 11.44%. Lending Club Passes 500 Million In Loan Originations, saying, ‘I‘ve been investing with Lending Club for a couple of years now, and I’ve gone from a skeptic when I first started investing with the service, to someone who is convinced that Lending Club can be an integral piece in any person’s investing strategy.’

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            Retirement Statistic # 3 – While the average retirement savings in the US is nearly $50,000, the median (so the amount which 50% of Americans have saved less than and 50% have saved more than, i.e, the 50th percentile value) is ONLY $2000. Wow!
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            Kay Lynn from Bucksome Boomer published Save Money by Living a Simpler Life, saying, ‘Doesn’t it just make sense to live simpler? The fewer things you own, the fewer maintenance costs you will have, and the more you will save in the long-run! Live a simpler life, and you will start seeing your bank account grow beyond your wildest dreams!’


            Miss T. from Prairie Eco Thrifter published 10 Reasons You’re Broke, saying, ‘If you always have more month than cash and never seem to get ahead or even to even, it’s time to look at some reasons you may be broke.’

            FG from Financial God published Harper’s Plan to Cut Canada’s Old Age Security OAS Program, saying, ‘The Internet is afire with news that the Conservative government of Canada is planning to raise the minimum age for Old Age Security, as part of a comprehensive government-wide cost-cutting measure for the upcoming federal budget. ‘

            Little House from Little House in the Valley published How Does Your Rainy Day Fund Stack Up?, saying, ‘According to Mint.com, 50% of Americans claim that they would have difficulty coming up with $2,000 for unexpected expenses. Around here, that’s what an emergency fund is for. However, I guess this is still a novel idea to many Americans based on data Mint.com collected. Check out the infographic yourself (click on the link to see a larger version on Daily Infographic):’

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            Retirement Statistic # 4 – 36% of Americans report that they do not contribute anything towards retirement currently.
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            Don from MoneySmartGuides published Investing: What You Cannot Control, saying, ‘This will be a two part posting on what you can and what you cannot control when it comes to investing. This first part will highlight four things you cannot control. Picking winning stocks, picking superior managers, timing markets, and one more…’

            Jen from Master the Art of Saving published Tax Refunds- The Good, The Bad and Why We Get One Anyways, saying, ‘Financial experts along with many personal finance bloggers frown upon getting tax refunds. Why? They actually have a valid point—why loan the government…..’

            Aloysa from My Broken Coin published How Realism and Creativity Can Help You Get Out of Debt, saying, ‘Sometimes I get frustrated with my life and myself because it seems that paying off debt is an endless process, a perpetual torture of saying no, a continuous refusal to spend on something that makes me happy. ‘

            Dividend Ninja from The Dividend Ninja published It’s Only Castles Burning, saying, ‘Investor Seth Klarman, founder of the hedge fund Baupost Group, wrote a book on value investing, called Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor. Read an update on Klarman’s activities’

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            Retirement Statistic # 5 – When retiring at the age of 65, 62% of people have less than $25,000 in savings.
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            LaTisha from Financial Success for Young Adults published First Rental Property: Find Investors or Go It Alone?, saying, ‘Starting your first rental property? Deciding whether or not to take on investors has many advantages and disadvantages.’

            Ryan from Early Retirement Investments published Why Your Children Should Open a Roth IRA at Age 18, saying, ‘These are the reasons why children should open at Roth IRA at 18 years old or earlier.’

            Suba from Broke Professionals published The Definition of Broke: What Does It Mean?, saying, ‘I often catch myself saying I’m broke… but is it true? Just because you have no money in the bank doesn’t necessarily fit the definition of broke.’

            Kanwal Sarai from Simply Investing published Top 3 Tips for Successful Investing, saying, ‘The beginning of the new year is a great time to plan for the future. Plan on how you will be able to earn more passive income this year than last year. Here are 3 tips to help you earn more:’

            Daniel from Sweating the Big Stuff published Lending Club Returns at 15.87% in February 2012, saying, ‘I started investing in Lending Club in 2011, and so far my returns have been stellar. Using some smart criteria, I’ve been able to crush the average.’

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            Retirement Statistic # 6 – For the next 19 years, 10,000 Baby Boomers will reach retirement age each day.
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            Erika from Newlyweds on a Budget published So I think I need to reevaluate my goals, saying, ‘I think I made my goals too easy for the year because we’ve already completed a huge chunk. 1. Pay off credit card debt. We’re on track to pay this off by April 1. Hoping the move doesn’t put a wrench in our plans. 2. Contribute full company match to 401K. Done! I contribute 3 percent, read my other accomplishments’

            Andy from My Retirement Blog published The 6 Most Reliable Ways to Save For Retirement, saying, ‘Many Americans are planning for retirement earlier than ever. While the reality is that tough economic conditions may force them to retire years later than they wanted, this is having the dual affect of encouraging more foresight and planning.’

            Steve from Money Infant published Saving Money and Time Through Automation, saying, ‘Automation is one of the keys to unlocking your financial freedom. Chances are you already automate some of your savings plans like 401k and emergency savings’

            Jester from The Ultimate Juggle published How to Accept Advice from Others, saying, ‘Who do you ask for financial advice. Find out who you should be asking for financial advice and learn how to accept it gracefully.’

            ________________________________________________________________________________________
            Retirement Statistic # 7 – 24% of US workers have postponed their target retirement age in the past year.
            ________________________________________________________________________________________

            PITR from Passive Income To Retire published Why Cash Flow is Important, saying, ‘Find out why cash flow is important in an early retirement plan. The importance of cash flow rests the 2 ways it helps me fulfill my dream.’

            krantcents from KrantCents published Invest Your Tax Refund or Send It to Me!, saying, ‘Invest your tax refund or send it to me! It is all about choices. What are you going to do? I know some will pay down debt, add to savings or fund an IRA. If you are going to go out and spend it on dinner, clothes, electronic toys or something that will break, wear down, etc they you’re better off sending it to me!’

            Jeffrey from Money Spruce published Wealthy, Successful Bloggers: Don’t Simply Follow Their Frugal 
            Advice, saying, ‘I often wonder if I’m brainwashing myself with the stuff I just want to hear. Lately, I’ve been reading a lot of blogs, books, and other advice about self-employment and starting your own business. I’ve mostly convinced myself that working a 9-5 job isn’t the key to happiness and success in my life.’

            Nathan Kim from Everyday Money Info published Roth IRA or Emergency Savings? Yes!, saying, ‘Instead of making the choice between funding your retirement or building up emergency savings, you can do both with a Roth IRA.’

            Pat Huddleston from Investor’s Watchblog published Is Your Nest Egg an Adviser’s Piggy Bank?, saying, ‘Tips on how to protect your retirement investments’

            Melissa from Fiscal Phoenix published Diversification to Reduce Risk, saying, ‘When you first start investing, you may be scared that you will lose money. Putting your money at risk is never easy especially when you have fear that you will lose that money. Well, there are a few ways to reduce or minimize the risk of losing money.’

              ***Photo courtesy of http://s0.geograph.org.uk/geophotos/02/25/21/2252194_77b5e5a4.jpg
              ***Retirement statistics courtesy of http://endoftheamericandream.com/archives/10-incredible-statistics-about-americas-coming-retirement-crisis-that-will-blow-your-mind and http://www.smartmoneyadvice.com/retirement-statistics.html and http://www.businessinsider.com/facts-about-retirement-crisis-2010-12#the-50-states-are-collectively-facing-517-trillion-in-pension-obligations-but-they-only-have-194-trillion-set-aside-in-state-pension-funds-11

              What Do You Do If You Really Cannot Afford Regular Health Insurance?

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              In most personal finance self-help books I’ve read, one of the first, most important, and fundamental assumptions made before proceeding to discuss the usual personal finance topics such as 401ks, IRA’s, emergency funds, etc is that a person should have health insurance to protect themselves in the event of a health emergency. 

              Indeed, even in the My Personal Finance Journey Account Hierarchy, securing adequate health insurance is listed as the highest and most basic priority for your funds as they come in. However, no detail is gone in to about how to secure this coverage.

              Because of the very fact that health insurance is listed first in the pecking order, having health insurance is something that I think a lot of people take for granted in focusing their discussions about personal finance. This is either because they figure health insurance is provided as a health benefit at people’s work or they simply use the first funds they receive each month to pay the monthly premiums, and they have plenty of money left over to cover their other necessary expenses.

              However, in today’s economy with many people out of work, facing tight budgets, or having to take ANY job that comes their way in the stale job market, I’ve begun to realize (after talking with several friends facing this problem) that many people are 1) left to obtain independent health insurance coverage, 2) unable to cover the cost of an independent health insurance plan because it is so expensive, and 3) earn income above the poverty level and as such, do not qualify for government health coverage.

              Because of this realization, I thought it would be valuable to discuss today about the various options that exist (if any) for people that are having trouble affording this crucial life need. 

              But first, let’s take a step back and look at the health insurance landscape we are currently facing…

              How Many People Do Not Have Health Insurance in Today’s Society and What Percentage of Full Time Jobs Do Not Include Health Insurance?

              Looking at the big picture, I suppose the “revelation” that people are unable to afford health insurance shouldn’t come as too much of a shock to me. After all, I’ve probably been hearing for about 8 years now about the statistics of how 16.3% of the US population is without health insurance (source – CNN) . And, since I have faith in people and believe they are not dumb, it’s reasonable to believe (hopefully) that they would pay for health insurance first and foremost. The CNN article above stated that the average cost of an independent health insurance plan for a family is now up to $13,770. Personally, I would say that this figure falls in to the “unaffordable” category for most middle class families.

              Yet another fascinating statistic to look at (also sourced from the same CNN article above) is the percentage of employers that offer health insurance to their full time employees. To my shock, only 55.3% of employees have health insurance through their employer – down from 65% in 2000.

              I suppose this decrease in company health insurance coverage makes sense with the recession we have experienced and companies trying to cut costs. Looking at this statistic, it really makes you feel thankful if you are one of the ones that gets health insurance through your employer. Personally, I had no idea that this figure was this low.

              So, What Do You Do If You Cannot Afford Health Insurance?

              It’s clear that the numbers shared above do not paint a very pretty picture – with approximately 50 million Americans without health insurance and only half of employers paying for health insurance plans.

              Putting politics aside (please – this is not a politics blog), it leaves a person asking the following – “With the high price of health care, what are my options within my control if I simply cannot afford standard health insurance? I don’t want to get hurt and owe $80,000 for the surgery bill.”


              Listed below are several things I could come up with after searching around and applying some interpretations of my own. I will approach this issue by taking the perspective of someone that is above the poverty level, earning $20,000-$30,000 per year. I’ll also assume you’re not yet old enough to qualify for senior citizen coverage through Medicare, are looking for a somewhat long term solution, and cannot afford COBRA extension coverage through your old job.

              Option 1 – If you’re 26 years of age or under, get on your parents’ health insurance plan – 

              I know. I know. This option won’t work for the many of you out there reading who are above 26 years of age. But, it’s worth mentioning since young adults age 19-25 represent one of the largest groups of un-insured in the nation. The CNN article above mentioned that some 70% of young adults in this age group are uninsured. This is simply amazing. Please, don’t think you are invincible. Talk to your parents to get on their health insurance plan if this is at all possible.

              Conclusion for Option 1 – Great if you’re 26 or younger, but useless for everyone else.

              Option 2 – Get coverage for your family (or at least your children) through Medicaid / Children’s Health Insurance Program (CHIP)

              Listed below are the eligibility requirements for Medicaid/Children’s Health Insurance Program:

              • Pregnant women earning below $20,000 for a family of two.
              • Parents (the Medicaid.gov website says that income limits vary by state). 
                • However, I would guess that it’s unlikely that you’ll be able to qualify unless your income is lower than $15,000-$20,000.
              • People with disabilities with income up to $2,000 (not very high!). 
              • On the other hand, the government places a priority on trying to get health insurance for children. Families with incomes up to $44,000 can qualify to place only their children (not the parents) on Medicaid. Furthermore, families with incomes above this can qualify to get their children health coverage through the Children’s Health Insurance Program.


              Conclusion for Option 2 –  Medicaid and CHIP are great for people below the poverty level, but useless for higher income earnings that are simply going through a tough time in life or earning $20,000 – $30,000. However, your child (not you though) can still be covered through these programs if you earn a higher income. So, that’s one positive thing to give you peace of mind. 

              Option 3 – Get reduced rate group health insurance coverage through organizational memberships


              As a result of involvement in present or past jobs or hobbies, many people have become members of professional and/or formal organizations during their lifetime. However, one thing that a lot of people do not know is that many of these organizations will have pre-negotiated group discount rates on health insurance that they offer to members. Now, they won’t directly pay for part of your health insurance like an actual employer will, but these discounts can defray the costs.
              So, take a second and think about any professional, union, chamber of commerce, or alumni organizations you are a part of currently or have been a part of in the past. Next, go to Google and search to see if one of the benefits of being a member is getting a discount on health insurance. If you are not a member of any organization, you might think about joining one that offers health insurance discounts. A good way to start doing this is to search for the phrase “membership benefits health insurance” in Google. 
              While writing the paragraphs above, I thought to myself – “This sounds great, but really how much of a discount can a person get from these organizations? It can’t be all that much, can it – enough to make health insurance affordable?”

              So, let’s take an organization that I am a part of as a result of my graduate school job – The American Chemical Society. In briefly searching around their website, I found that they do offer a group insurance program. Great! However, when I went and tried to find what sort of discount members generally receive for getting health insurance with the organization, I couldn’t find anything. 
              Furthermore, in doing an exhaustive search on the Internet, I could find no disclosure of any estimates for how much of a discount people get for health insurance when it is purchased through a membership organization. This is partly understandable since as you can imagine, the rates for health insurance vary quite a bit person-to-person. However, since there were no instances of people saying, “HEY! I SAVED $200 PER MONTH BY GETTING COVERAGE THROUGH THIS ORGANIZATION,” it makes me think that the savings aren’t that great. But, you may be able to get more complete coverage through an organization with fewer barriers to entry than searching for health coverage by yourself.
              Conclusion for Option 3 – Overall, it’s worth checking to see what sorts of rates you can get through membership organizations and determine if it is affordable. Even though you can probably get more complete coverage through one of these organizations, I have not seen the evidence yet to convince me that you will save all that much. Anyone have more experience with this option than me to prove I’m wrong and/or set me straight?

              Option 4 – Get a part-time job that includes health insurance benefits


              In researching while writing this post, I came across the option of obtaining full health insurance benefits (where the company pays part of your premiums) through getting a part time job at certain companies, many of which I found out were very common companies that you see around town. Phil @ PT Money put together a great list of the companies that offer health insurance to part time employees as well as the qualifications needed. 
              Instantly, I became a fan of this option, especially thinking of people without health insurance who are between jobs or only working part of the week. Another reason why I like this option is that it really puts you in the driver’s seat of controlling your financial well being. 
              The only drawback to this option (aside from any competition to get these jobs) is that there is a 20 hour per week working minimum to qualify for obtaining health insurance with many of the jobs. So, if you already work one job, it will by no means be a “piece of cake” to obtain coverage this way, but I think that the peace of mind that you’ll obtain in knowing that your family is taken care of will make the 20 hours per week well worth it. For example, the 20 hours could be knocked out by working 5 pm to close twice per week and then on Saturday/Sunday.
              Conclusion for Option 4 – In my mind, a great option for people to really take charge of their financial well being and obtain health insurance paid for in part by their part time employer. However, you have to be willing to put in the hours to qualify.

              Option 5 – State-specific affordable health insurance programs


              Continuing with the list brings us to the somewhat variable option of affordable health insurance plans funded at the state level. As you can imagine, you’ll have to check with your state’s Department of Health website for the specific details of the program offered in your state (usually, a good way to find this to Google, “cannot afford health insurance + your state).
              For example, Washington State offers a Basic Health Plan to limited income earners who make 133% of the poverty level (so less than $20,000) and the State of Virginia offers low income earner coverage through the Virginia Health Care Foundation.
              Conclusion for Option 5 – No guarantee that you’ll be able to get coverage from a state program (especially if you earn above the poverty level), but it’s worth checking at the very least.

              Option 6 – A “Mixed Bag Approach” Using Emergency Only Insurance Coverage + Low Cost Health Care Options

              The last option I found (and optimized slightly) when researching about this topic was a somewhat mixed approach. It was also one of my most favorite (along with getting on your parents plan if you’re under 26 and getting a part time job that has health insurance) because it is very concrete and doesn’t hinge on income level requirements, etc.

              Essentially, this strategy is based on the purpose of insurance in general at it’s most bare-bones level being to protect you from financial disaster by not letting you go in to multiple ten’s of thousands of Dollars in debt (not to pay for routine visits to the doctor, etc). Using this underlying purpose in assuming that health insurance is A MUST, this strategy involves the following steps:

              • Get a high deductible coverage insurance policy (essentially, the cheapest policy available with no office visit coverage). By high deductible, I mean high – something to the tune of $10,000.
                • Kevin from Out of Your Rut found that for a married couple with 2 children, a normal health insurance policy with a deductible of $1000 would carry a monthly premium of $1213. However, when the deductible was increased to $10,000, the monthly premium went down to $303. This makes the coverage go from non-feasible to feasible, but still a pain.
              • Once you have the policy, you will only use it in the event of a major surgery/injury, since you would have to pay $10,000 to access your coverage and you have no office visit stipulations.
              • For routine health care (prescriptions, doctor visits, etc), do not go to the emergency room. Even though they are required by law to treat you (and only collect payment on about 70% of the patients they see), this is one of the most expensive places to receive treatment. 
              • Instead, take advantage of free and/or affordable community health care clinics available in your area.
                • To find one of these discounted clinics, click here to go to the US Department of Health and Human services page where you can perform a search.
                • When I searched around my area, I found about 4 federally supported/affordable health care centers within 50 miles.  



              In putting this post together, I was thinking about any negative aspects to mention about free clinics – such as strict low income requirements or long wait times. Therefore, I reached out to my Mom, who worked in a free clinic several years ago for her experience. Her input is quoted below, in the true full sentence form that she always writes emails in no matter what the topic or brevity of the message (she reads this blog by email feed and will probably think it’s neat to be included here):

              I last worked in a free community health clinic in 1994. We had good staffing and all people were seen during each clinic period in the evening. They had to wait several hours, some waiting for about 3 hours. All services were free, including some medications. People could show up at the clinic and be seen. There were not many restrictions on receiving this care. 

              Conclusion for Option 6 – While not perfect, using a high deductible health insurance plan coupled with community health care clinics can save you from bankruptcy by providing you with health coverage for expensive surgeries/injuries at a feasible cost.

              To wrap up this post, today, we’ve explored 6 options for people that are having trouble affording health insurance. While none of them are as ideal as simply having a full time job that you commit yourself to (and then have weekends off) that provides low cost health insurance, they are worth exploring in order to obtain health care coverage. It is my belief that having health insurance is STILL the most important financial priority, so it really is essential to not take this lightly and obtain coverage. Thanks for reading!

              How about you all? Do you have health insurance? If so, did you obtain the coverage from your employer or through an independent plan? What do you pay for health insurance premiums each month?


              Have you ever tried any of the 6 options mentioned above or know anyone that has?


              Share your experiences by commenting below!

                ***Photo courtesy of http://farm4.static.flickr.com/3110/2898187808_744e8b82a5.jpg

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