Good Post that follows up on the comments I made in my book review earlier.
Mr. 39 Months
Good Post that follows up on the comments I made in my book review earlier.
Mr. 39 Months
Back two years ago, I reviewed Ben Stein’s & Phil DeMuth’s book “Yes You can time the Market” in which they discussed ways to time the market over the long term, using various signals signs to determine the long term (15 year trend) of the market. They definitely did not believe in short-term timing, but they did present a good case for how to look at the current state and make long-term determinations.
I followed up with several other posts in which I looked at short-term timing, and at what Stein/DeMuth’s strategy would have resulted if I had followed it since graduating college in 1986 (answer, I would have been 5% – 10% richer over a 30 year period, including the dot.com crash).
I thought I’d provide a slight update to folks in case they were interested.
If you remember, Stein/DeMuth had four key measurements to determine the long-term direction of the market:
For Jan 1, 2018, the numbers showed:
So three out of the four metrics said don’t buy. The S&P 500 for 2018 was down -6.2% (source CNBC). A lot of folks paid money for stocks that were overpriced at the beginning of 2018.
So what did Jan 2019 look like?
So three out of the four metrics say “buy stocks” – and the market is up 15.23% year-to-date
Does this prove that Ben Stein and Phil DeMuth’s market timing strategy is still valid. It appears to be still going well.
Anybody out there with an interesting market timing strategy?
Mr. 39 months
This book was recommended (and purchased for me) by Mrs. 39 Months. Followers of the blog may have noticed a little manic/depressive streak in some of my writings. While I have often chosen to take the happy road in life and avoid unhappy/depressive thoughts, I can get into a “funk” at times. I also have quite a temper (inherited from my Dad’s side of the family) that was probably pushed further when my parents got divorced when I was very young. Now, any time that I (or both of my siblings apparently) feel things are not in their control, we tend to go bezerk and overreact. My younger brother has broken things, as have I (and I suspect my older brother has as well). This also leads to some very aggressive driving at times, which is not good for anyone.
Mrs. 39 Months has been tolerant at times, though she has often expressed either concern or anger at how I overreact. I assumed this was why the book was purchased.
The general thesis of the book, however, is that the desire to be happy all the time is not only impossible, but also fly’s in the face of our natural selection process. The humans that survived were the ones that were cautious, careful, and who assumed the worst (and were surprised when it worked out). Those who assumed things were good when they were eating the berries got an unpleasant surprise when the lion jumped out and ate them.
Thus, we have been bred to plan for the worst, to look out for potential pitfalls, to worry, and to make plans to overcome problems/issues in case they pop up. That is why it is impossible for us just be happy for any extended time. Strike any bells for those FI people who have retired?
The book has three parts:
I have to say, after reading through it, I identified many of the issues that kept me from being happier and moving towards my goals. Following some of the methods in chapter 2, I have been able to come to terms with my anger and let a lot more “roll of my back.” It has been very helpful and Mrs. 39 Months has noticed the difference.
I am just starting to dig into the third part (I have read it, but have not done any of the nine exercises yet). Looking forward to seeing how matches up with some of the work I have already done.
I would rate it an A, and a good book for those interested in why they “can’t just be happy.”
Mr. 39 Months
Most folks in the FIRE community have read the classic book by Thomas Stanley and William Danko, The Millionaire Next Door. Written in 1996, the book exploded many of the myths of the wealthy in America. Having done research on US millionaires for over a decade, the authors had the “goods” on them. Over 80% of the Millionaires were first generation (i.e. no inheritance) who did it be hard work, frugality, and the smart allocation of resources. The book also detailed how many of the folks who “look wealthy” are not. They are often living paycheck-to-paycheck. How many folks in the FIRE community have seen that?
Since it was first published, Thomas Stanley has gone on to write three other books on the topic (The Millionaire Mind, Millionaire Woman Next door, and Stop Acting Rich). Each of these added additional data points on US Millionaires, and the ones who were trying to “look rich.” While compiling updated information for the 20th anniversary of the original book, Dr. Stanley was killed in an auto accident. His daughter, Sarah Stanley Fallaw, was assisting in the data collection and analysis, and felt honor bound to finish the book her father has started. Thus, The Next Millionaire Next Door.
The book seeks to answer the question, has the path to wealth changed in the 20 years since the original was written, and if so, how has it changed. Unsurprisingly, the book provides details that the same things that lead to wealth in 1996 (frugality, hard work, etc.) still work today, in some cases, even better. The book details the opportunities that are available, and blows apart new myths that have developed since 1996. In addition, there are significant parts of the book that discuss the FIRE movement, and its relationship to the book’s topics.
For many folks who have read the original, this book will not offer very many insights or original ideas. It validates the previous work with new data, new ideas and updated links. Still, I think it’s a valuable book to read, as it helps arm the reader with data and arguments against those who state that the current time period is nothing like the 1990s. The basic building blocks of wealth are still there, and still working.
I’d grade the book a B.
Mr. 39 Months
An excellent book that starts from the basis that taxes will be increasing. The book is short, but full of good information and ideas for the reader. This book has been revised from the original 2013 edition, to take into account the new tax law changes that are coming into effect in 2018.
The author talks about the all the underfunded mandates of the federal government (Social Security, Medicare, etc.) and how the future must see a rise in tax rates in order to help fund these costs. He jokes about a CPA on a national radio show who talked about the grim financial situation of the country and asked listed to come up with a four-letter word to explain the problem. After shooting down “debt”, “wars” and “kids, he finally gave the answer – “Its Math.” The key question of the book is “are you prepared?”
The first part of the book, the author goes into some detail of our current financial situation in the US, the history that led us to it, and how politicians have tried to deal with it (or not deal with it) over the last hundred years. He states that due to these issues, the tax rates are due to rise, in some cases dramatically. He then posits and answer – do what you can to get your tax rate to zero, so that even if the tax rates double, it won’t affect you. The method involves using the historically low tax rates now, to put you in the driver’s seat in the future.
The Author then goes into the three primary buckets that people have their retirement finances in:
For each of these, he discusses their strengths, weaknesses, optimum uses, and optimum amounts to have in at retirement, based on the current tax code. He doesn’t discuss asset allocation (% of stocks vs. bonds, etc.), just the amount that should be in each, based on the 2018 law. For example, with 401K/IRAs, if you can keep your RMD (required minimum distribution) under the standard tax deduction ($24K for 2018) then that money comes to you tax free.
The author also covers a Life Insurance Retirement Plan (LIRP) which is a method of using a life insurance policy to put away money tax free, and then withdraw it tax free in the years ahead. It’s a complicated product, and doing it incorrectly can cause you to have tax penalties. Depending on the policy, it also can be used to help pay for Long-term care. The author lays out its advantages, but also urges the reader to get professional assistance in setting it up.
The author closes out by going through a case study, and showing how an individual can take advantage of today’s tax rates to set themselves up for being tax free in the future. Some of the methods include:
I’d rate it an A, and a must read for any FIRE person who wants to learn about how to handle their money going into retirement.
Mr. 39 Months
This classic book was originally published in 1973, and has been updated every few years to reflect updated data (the version I purchased was from 2003, so it had the dot.com bust in it, but not the 2008 meltdown). The general theme of the book in 1973 was that “an investor would be far better off buying and holding an index fund than attempting to buy and sell individual securities.” Over thirty years later, the data still bears out this lesson – one that most FIRE folks agree with.
Why follow-up editions over the last 30 years? The author states that there have been enormous changes in the variety of new financial instruments over that period, and these will need to be evaluated against the basic thesis of the book. Overall, it’s a very “readable” book, especially for those with an interest in investing and financial instruments.
The first part of the book is a history course of investing down the years, starting all the way back with the Tulip Craze of the 17th century and moving through the great depression, the 60s, 80s, and all the way up to the dot.com bust. In each era, the author points out the prevailing investment theories and provides data on how they performed. It’s a great read for those who want to understand how people have been investing throughout the centuries.
The second part of the book describes the current state of the investing world, and describes, in detail, the two main theories of stock analysis (Technical and Fundamental analysis). He again goes into some detail of the methods of each, their strengths, weaknesses, and effectiveness based on history. In the end, the author uses the findings to state that “investors might want to reconsider their faith in professional advisors.” He notes that most do not beat the market average – although some do, and some do consistently. His final conclusion is that the historical evidence does not support a theory that professionals can do better than the individual investor.
The third part of the book goes through more of the modern investing theory (Efficient Market Theory, Modern Portfolio Theory, etc.). Again, the author provides a wealth of data and comparisons so that the reader can make his own judgements. In the end, the data points to a very efficient market that is difficult for a professional to manage successfully and beat the market.
So what do you do then? The author provides a road map of exercises to follow to build your financial plan, including determining your objectives, insurance, tax avoidance, bond and other investments (real estate, precious metals, etc.). It’s a great read on how to diversify, plan for your life cycle, and winning the investment game. Just for the last quarter of the book alone it’s a valuable read.
I’d rate it an A, and a must read for any FIRE person who wants to learn about the Wall Street Game.
Mr. 39 Months
The title of the book intrigued me, since I started out my journey 39 months from retirement (currently with 23 months left, yay!). The objective of the book is to “layout what you need to do in the last few years before retirement to make sure your life post-career is financially comfortable and fulfilling.” It’s a big objective, and one we here in the FIRE community have been talking about for many years. In fact the author writes for several blogs that are in our community.
Please note that this book is aimed at a US audience, so for those readers outside the US, you will need to take the advice and translate to your country’s situation.
The initial four chapters cover some of the basic finance questions that folks who are nearing retirement.
While many of these topics are covered in depth in various FIRE blogs, the book puts them all in one spot for easy reading. There are other ways to perform the calculations in the book, and you can search for others that appeal to you more – but at least it gives you an idea of the steps necessary at the time.
The second part of the book covers aspects of the government that need to be included in your retirement planning.
It covers the basics of government support and costs, and is full of good information. The discussion is chapter 8 covers the basics of seeking out health care if you retire before 65, but doesn’t have many details or links. The book still assumes that Social Security and Medicare will be available when you retire (something we are all a highly suspect of at this time).
The final section covers home, family and other considerations as you prepare to retire.
One of the great things about the book is that, at the end of each chapter, there is a countdown of the topics covered in the chapter, and what needs to be done 5 years before retirement, 4 years, 3, 2, and 1). It’s an excellent guide on the important aspects in the chapter. I would recommend this book for those just starting out on their FIRE journey, or if you want to give the book to a friend or spouse who hasn’t embraced the FIRE lifestyle yet.
Mr. 39 Months
It’s been a while since I did a book review. I have done a lot of reading on the internet (blogs, articles, etc.) but not many new books. Recently I saw an article on this new book The One Page Financial Plan, and it intrigued me. So I took the opportunity to purchase the book and read through it. So here goes.
First of all, those who are hard core FI people will find little for their number crunching here. The book is rather small on calculations, ratios, etc. If you are looking for a book to go through your investment strategies or net worth calculations, then there are other ones which will do a better job than this one. That is not the objective of the writer. Instead, he offers a less-number oriented, more “touchy/feely” type of financial plan book, as one might expect from the title.
The first part of the book is the “discovery” phase, where the authors uses some questions and exercises to help the reader determine the “why” for their financial planning (the most important question), the where (where you want to go, i.e. goals) and where you currently are (net worth, assets & liabilities, etc.). Again, very few numbers are discussed or worked through here.
The second part of the book works through spending and saving. He discusses simple ways to determine your current spending and how to create a basic budget. He then ties that back to the goals developed in the first section, and uses that to motivate the reader to save.
The third section discusses investing and other finance topics, including insurance (buy as little as necessary, but buy it), debt (good and bad), and basic, beginner investing – with a heavy emphasis on index funds, and buy & hold strategy. He finishes with some good information on the need for rebalancing. As before, there is a startling lack of numbers in these chapters – just basic common sense for the beginning investor.
The final section covers avoiding big mistakes that can sideline you (not hiring a good financial advisor to help teach you, always making the decisions instead of trusting the advisor, not panicking at market dips, etc.). His lesson is one of basic, boring investing over time.
In the end, I believe this is a good book for folks who are just getting interested in the FI journey, or for those passionate FI people that are trying to interest another (a spouse, a family member, etc.) in many of the concepts and ideas. It’s a great book for someone to get started, and then as they grow in interest and knowledge, they can seek out additional, more detailed information for those topics that interest them.
Mr. 39 Months
Recently Elizabeth Thames, more commonly known as “Mrs. Frugalwoods” came out with a book detailing their path to financial independence and a new life on a farm in central Vermont. Most readers know the basic story, as they have been following her blog (see link to right) for years.
The book is told entirely from Mrs. Frugalwoods point of view (she does include conversations with her husband often). It tells the story from her college graduation, her first job (making $10,000 while living in Brooklyn and working for Americorp), and then on to other locals, jobs and adventures. Along the way, she manages to save a large percentage of her income by living a frugal, but not extreme, existence.
After the two of them marry and move to Boston for work (and after they have bought a house) they decide to pursue Financial Independence. The two of them are having coffee/tea at a shop, and Mr. Frugalwoods shows her a spreadsheet with reveals that, based on cutting some of their current expenses (they were already saving about 45% of their take home pay), and then renting their house in Cambridge, MA, in 3 years and 5 months. they could purchase a farm in Vermont and be financially independent.
It is at that that the Frugalwoods blog starts, and they “kick it into high gear” and start to really save. It is this part of the book where she goes into some detail on how to trim expenses even more, and some of the steps they took to move towards extreme frugality. She even gave up her haircuts and had her husband start cutting her hair! As a budding FI person, this is the part that I like, the concrete methods used, the things I could learn from and copy.
The conclusion of the book has them reach their FI number, and at the same time, give birth to their first child, and buy their farm in central Vermont. All a happy ending, though the adventure for them is really only just beginning. I’m sure as you read her blog, you will get to learn more about their new lives.
As far as a finance book, I would have to say it was lacking a lot of the math and calculations that folks in the community are used to seeing. The book is lacking in net worth calculations, expense ratios, etc. As a numbers geek, I was hoping for more concrete examples of how they reached their goals.
If you look a good story of how one woman and her family reached FI and found a life that they wanted, it’s a good yarn.
Mr. 39 Months.
The Frugalwoods has been one of the blogs and stories that I have been following since I started researching FIRE a while ago.
They’ve completed a book on their saga (to date) and its out now.