CYC has decamped to Central Arizona for the week, and unwittingly witnessed a conversation that segues into our first submission. Laying by the hotel pool, eyes fixed on our Kindles, we overheard the kind of boisterous people that such a milieu seems to attract. A tattooed bro in his late 30s or so, and his fat wife. Conversing – or to be more accurate, interrogating – every person around them.
“So where are you from? We’re from Phoenix.”
“So where are you from? I used to live in Oregon for 6 years, but I was born in California. Then I met him (points to tattooed bro) and now we live in Phoenix.”
And then finally:
“So where are you from? What’s that? Rome? Like Rome in Italy? Oh, no way! Honey, they’re from Rome! I’d love to go to Rome. I’ve never been to Rome. What’s your name? ‘Angela’? That’s a girl’s name in America. Oh, you said ‘Angelo.’ I’m sorry. I thought you said ‘Angela.’ That’s a girl’s name in America. So what part of Rome are you from?* Is this your first time in America? It’s interesting meeting someone from Rome because I’ve never left the United States.”
And that tore it. Again, this was a woman in her late 30s. Not only that, but she had lived in a state that borders another nation and is currently living in a 2nd such state. She also has enough money that she could afford to spend a couple of days at a resort that’s almost as far from her home as another country is. The idea of international travel seemed out of reach for this woman, unlike the crullers and bear claws at the breakfast buffet.
Barbara Friedberg wasn’t there, but she would have shaken her head at this woman’s limited view. Barbara recently traveled to Machu Picchu – a place pool lady probably couldn’t have found on a map – and didn’t vaporize her life’s savings to do so.
Our generation is spoiled to the point that we don’t even realize how achievable international travel is. Your grandmother might have crossed an ocean once, to get here, then never left. But several of our regular CoW submitters have each visited dozens of countries, often paying less to travel to Kigala or Columbo than it would cost to visit Miami. Open your eyes, see how Barb does it, and follow her lead. Or stay insular, whatever.
One of those peripatetic few is Paula Pant at Afford-Anything, who has visited more places than you ever will despite not yet turning 30. Paula didn’t come from money, but she knows how to make it and how to refrain from unnecessarily spending it. (Also how to invest it, but that’s a topic for another time.) Paula forgoes profligacy in some parts of her life (owning an unremarkable car, having roommates) so that she can hop on a plane to Amsterdam or San Francisco without blinking. Largely because she doesn’t squander money. In that respect Paula’s like Trent Hamm, except with a purpose. Well, she also writes beautifully, isn’t obese, is comfortable on camera, doesn’t terrify small children, doesn’t obsess over role-playing games and doesn’t make her own soap, either.
Here, we’ll continue with something cerebral and provocative, keep the dullwits from reading too far. The last baby boomers were born in 1964, meaning that sometime around 2080 they’ll finally, mercifully have gone the way of the Tasmanian tiger. PKamp3 at DQYDJ.net says it’s inaccurate to credit (or blame) them for every demographic phenomenon, not the least of which is lower participation in the workforce.
For every dozen simpletons whose only understanding of debt is in the form of their monthly credit card balance, there’s one sharp cookie like Pauline Paquin at Reach Financial Independence who understands that borrowing money is almost a necessary condition for building wealth. She borrowed to finance investments and then, trapped in a corner by her conscience and her indebtedness, fought interminably to honor her commitments and keep her investments intact. Pauline says that the debt helped her in an indirect psychological way, too. Knowing that she had to pay back the money she used to finance her investments forced her to drive in a gear that she didn’t know she had.
Our most consistently mysterious contributor is Dividend Growth Investor, a model of efficiency who shares with us every week his** mechanism for building wealth via dividend-paying stocks. Even a company that pays an ever-increasing dividend has some amount of risk in its stock, so how does Dividend Growth Investor go about measuring that risk and working within it? You have to read his piece, but the gist of it is that a $1 drop in the stock price is often less important than a 10¢ drop in the dividend.
New submitter? A college kid who has $15,000 in student loans, is saving up for a $4000 engagement ring and a $5000 “wedding fund”, and who has an emergency fund? Oh, this is going to go splendidly. Jeremy Berretta at My Financial Road has a self-styled “savings problem.” This post is more of that 1st-person singular pronoun confessional stuff we’ve grown accustomed to, the kudzu that stains an otherwise pristine lawn, but Jeremy does have a sense of humor and apparently, some assets. We’ll call him a work in progress. Why he’s going to blow $9000 he can ill afford on a woman who excites his pants is too deep a problem for us to comprehend, however.
Advertising copywriter. Which, for effort rendered, was also the best paying. Harry at Your PF Pro asks his readers, including us, what the easiest job we ever had is.
Evan at My Journey to Millions is a personal finance anarchist, or at least he’d have us believe so from his latest post:
Most people discuss personal finance rules in absolute terms. I hate it! I truly believe there are almost NO SET PERSONAL FINANCE RULES. Rather, personal finances are well just that…personal
There are plenty of set personal finance rules, which are basically the antonyms of all the Anti-Tips of the Day we run in the right column. No matter what the endeavor, you need some structure. Beethoven’s worst symphony is objectively better than Train’s asexual caterwauling. Professional football is an institution, while professional dodgeball doesn’t exist. Organization even carries over to crime: Mafia dons lead better lives than street punks do.
Michael at Kitces.com discusses Monte Carlo retirement projections, the response to a previous generation’s less sophisticated insistence that the path to retirement follow a well-defined line. Instead, offering a range of possibilities with corresponding likelihoods makes far more sense.
Finally, Man of the World and chronic overachiever Jason at Hull Financial Planning reminds us that we’ve hardly touched on annuities in the too-long history of CYC. Yearly fixed sums for life? To paraphrase Jason’s synopsis of his own work, Dr. Wade Pfau, CFA recently published research showing that it’s possible to mathematically replicate or improve upon overall net worth performance of annuitization through increasing stock holdings a few years after retirement. But, as [Jason and CYC] have discussed, personal finance isn’t all about math. Research from RAND and from a longitudinal study of retirees in the UK shows that retirees who have annuities and pensions, all other variables held equal, are happier than those who don’t. So what’s the psychology behind why it’s better to make a slightly mathematically suboptimal decision in purchasing annuities (SPIAs or single premium deferred annuities only…don’t want to line salesmen’s pockets) than to take a crack at leaving behind a little more money the Pfau way?
Hold everything: one more. Apparently Wade Pfau’s been a common topic among our more enlightened submitters. Michael at Financial Ramblings shows the calculations behind Professor Plau’s work that suggests the optimal savings rate for a worker who wants to neither defer too much spending (thus being overly frugal in the present) nor have too little saved for retirement (i.e. too much life at the end of the money.) Not only that, but that optimal savings rate is calculated to 2 decimal places.
Thanks again. We’ll be back tomorrow.
*Which hill, you mean? Who cares?
**That he’s male is about the only thing we know about him.