As is evident by my lack of updates recently, I’ve taken a leave of absence from regularly writing on this site. I was entirely unsure where I wanted to go with it, so I felt it was best to stop for the time-being and ponder things over.

In the meantime, I’ve been slowly putting together a PDF that will provide an overview of my personal finance philosophy. My goal is a relatively short document that effectively summarizes what I feel are the most important aspects of succeeding financially. Whether or not it will go down in history as a monumental achievement remains to be seen.

Now if you’ll excuse me, the relentless stream of philosophy writing and reading that needs completed is demanding my attention.

Until next time, stay classy San Diego.

Over the past couple years I’ve become very conscious and deliberate with how I manage my money. Even when I don’t make very much (tutoring 6 hours a week during the school year doesn’t equate to a very big paycheck), my financial habits help me get a lot out of what I do make.

At times though, my frugality threatened to become a little bit too much, past the point of sound money management and closer to self-deprivation. I would basically try to save money on everything I did, which is good for your savings but not so much for one’s morale. For 2010, I’m trying to move more towards prioritized spending and away from universal penny-pinching. In other words, I want to pour more money into the things I really care about and ruthlessly cut back even more on the things I don’t (Ramit’s idea of conscious spending has been a big influence on my changing mindset).

Most of us don’t make enough money to save, pay off or avoid debt, and spend randomly on every whim that tickles our fancy. Many Americans default to option three while completely ignoring the first two. Then they stand around scratching their heads when they get a foreclosure notice. The other extreme, where we have huge bank accounts but no life, isn’t much better. If you’re on financially stable grounds yet refuse to turn on the air conditioner in July, you have a problem.

The best solution, then, is to save for the future while prioritizing effectively in the present. Most rational people should do this to an extent, but we can do it a lot better if we explicitly give it our attention. For 2010, there is one key area where I want to consciously spend more without feeling guilty about it:

For as long as I can remember, I’ve had strong feelings of wanderlust (very typical among many people , especially those in a state of endless cornfields). As a kid though, you’re at the mercy of your family when it comes to traveling, so it doesn’t require much personal decision-making. Not anymore. I realized this as my roommate and I were planning our road trip for last spring break, and my desire to go out and explore the world greatly intensified.

This year I have one semi-big trip planned, a camping and backpacking journey to Sedona, Arizona over spring break with one of my best friends. The backpacking part will be my first such endeavor, so there’s a lot of planning involved. I’m a planner by nature though, so this is one of those instances where planning and anticipation is a huge part of the fun.

I find it somewhat ironic however, that backpacking, as an outlet to temporarily get away from society, reconnect with nature, and survive with basically only the essentials, is quite an expensive hobby to pick up. Thankfully my friend’s dad is willing to lend us a lot of the gear we need, but what I have had to buy so far (backpacking boots and a 90 liter bag) hasn’t come cheap. I can already tell that it’ll be well worth it though. I joked with my friend that we’ll probably spend the majority of the 20+ hour drive back to Iowa deep in discussion on where we want to go next.

In order to invest more resources in traveling, and more specifically this one trip, something has to give. It should be obvious that I don’t plan to compromise my long-term financial objectives, so I need to eliminate spending elsewhere (given that my income will likely be fixed until summer).

My expenses are already low in most areas, but I think I can be even more meticulous with my spending in my day-to-day entertainment (eating out, drinks, movies, etc). Like I said, I don’t spend all that much in these areas as it is, but I could still cut more for the sake of saving for my trip. I don’t want to be a scrooge who refuses to ever spend a dime out on the town, but I’m certainly not going to eat out multiple times per week and buy a 24 case of Bud Light every weekend, as some of my peers do. Spending liberally on these things isn’t a prerequisite for having a good time, and in the end I’m going to get a lot more satisfaction out of camping under the Arizona sky than I would by consuming a copious amount of beer every weekend.

In addition, I’ll continue driving my Civic like a grandma to save gas and using my far outdated LG flip-phone. It feels like I’m one of the few who still relies on a real computer to check emails and update my Facebook status, but for now I can survive with my cheaper phone and basic contract. After all, even though my grandparents have trendier phones than I do, it still makes and receives calls perfectly fine.

You can’t have it all, but we can do a lot better with the resources that we have simply by giving a little thought to how we utilize them. I plan to update my progress throughout the year.

Last week I said that my next update would be about plans and goals for 2010, but I’m going to forgo that. Instead, I want to talk about coin collecting. Of all the things that people amass (barf bags?), collecting coins may go back the farthest and be the most popular. It can also be financially beneficial.

I’m particularly interested in old U.S. coins that are comprised of 90% silver. When the mint stopped using silver in common coins (1964), coins that were made of silver began disappearing from circulation and selling for more than the face value. It didn’t make much sense to spend a silver dime as currency when the value of the metal content significantly exceeded the $.10 face value. Today, these dimes trade for more than 12x face value.

The fed can wreak havoc on the value of paper dollars and coins made of cheap metals, but not on the value of coins that trade based on their metal content. For this reason, and given the correlation between silver and gold, these little old boogers make a good hedge against the possibility of further dollar depreciation. It’s a good idea to keep a small portion of your money in precious metals, and silver coins are a good way to do so. It’s also a way to keep precious metals actually in your physical possession, rather than holding a note claiming ownership in gold or silver in some vault thousands of miles away.

The most cost-effective way to invest in silver this way is to buy coins that don’t command a premium over the actual metal content. For instance, pre-1965 Roosevelt dimes were minted by the hundreds of millions; they aren’t sold for over $1 apiece because of rarity, but because of the value of the silver. In addition to dimes, quarters and half-dollars from this time period are often referred to as “junk” silver and are often bought in large quantities, such as a $1,000 face value bag. These coins can also be found in smaller quantities, such as rolls of 50 silver dimes, that are suitable for any budget.

If you don’t mind paying a premium for rarity, age, and/or condition, then you have even more options for 90% silver investment. You could go with…

Mercury Dimes (1916-1946):

Peace Dollars (1921-28, ‘34-35):

Or Barber Half-Dollars (1892-1915):

…just to name a few.

You’ll have to be more careful here, since there’s more variables that go into what you’ll pay than its melt value.

With gold and silver still pretty expensive (bubble?), you want to avoid getting burned. With 90% coins, it’s easy as pie to start slowly and gradually add more as you go. I recommend checking out Coinflation, which uses updated metals prices to determine the melt value of many different U.S. coins. It definitely helps you determine what kind of deal you’re getting. For actually buying the coins, I’ve bought a few on Ebay and at a local coin shop. Prices seemed to be comparable between the two. No matter where you buy though, it definitely helps to be knowledgeable on what you happen to be purchasing.

It’s hard to believe that the 2000s decade (or the “Aughts”, as my econ professor would say), are drawing to a close. As many people are probably doing now, I’m spending some time reviewing this past year and outlining some plans for the new one. The following is a self-reflection of some areas of progress in 2009.

1.) I started this site:

Early in the year I had a vision of building my own financial advising business, and I figured this would be a good way to build some credibility around my name. Now I’m back to questioning what I want to do with my life, but since I’m still immensely passionate about personal finance, I have no intentions of discontinuing this site as of now.

2.) I read:

A lot. I suppose every job probably has its unique perks, and when you staff the front desk of college library over summer break, the perk is quite a bit of time to read. I probably read around 20-25 books this year, some of which were really influential (I hate to throw around the “life-changing” term, but it could actually apply to a few of them).

If I could only choose 5 to recommend, it would be these:

A. Walden- Henry David Thoreau.

This is widely considered a classic for a reason. I wrote some about it back in October.

B. The Rise of Theodore Roosevelt- Edmund Morris.

I’m not that much of a history buff, but it’s hard for me to imagine someone with more vigor, and who accomplished so much, as our 26th president. Not only is reading about “The Bull Moose” extremely enjoyable and interesting, but it’s inspirational as well. Roosevelt is my idol.

C. Your Money of Your Life- Joe Dominguez and Vicki Robin.

This is undoubtedly one of the most underrated personal finance books out there. I’d consider it a must for anyone who wants to be more conscious about how they manage their finances. I wrote about it this summer.

D. The Omnivore’s Dilemma and In Defense of Food- Michael Pollan.

I know, I know; reading about food initially sounds about as exciting as reading about the history of tax reform. I gave Pollan a shot though, and I was quickly hooked. After reading these two books, I don’t think it’s an overstatement to say that the way we grow and eat food here in America is an absolutely enormous problem. Read either (or better- both) of these books, and you’ll never think about food the same way again.

3.) I doubled my emergency fund:

And recently wrote about doing that here. Cool people have emergency funds. Do you?

4.) I simplified my investments:

I moved some money out of individual stocks, which I honestly didn’t know enough about to justify ownership, and increased my holdings in Vanguard ETFs. For probably 95% of individual investors, passively managed funds (not traditional mutual funds or individual stocks) are the way to go. And absolutely nobody does this better than Vanguard.

Vanguard rocks my socks off.

5.) I joined Toastmasters:

This was my single best decision of the year. Less than a year ago, I’d get nervous just thinking about the prospect of speaking in front of a group. Thanks to my awesome Toastmasters group, I’ve come a long way in overcoming my fear and slowly improving my communication skills. I’m still a bit nervous before speaking, but not nearly as much as before, and I’ve gained a lot of courage to acknowledge my nerves and do it anyway.

~

This isn’t an exhaustive review, but I’m sure nobody would want to read the entire thing. Next week I’ll write about my ambitions for the coming year. Until then, happy new year!!!

My intention for this weekend was to write a post journaling the progress I made in 2009, financial and otherwise. It didn’t happen. I guess I underestimated the power of prescription painkillers…

This past Friday I had a shoulder arthroscopy to repair the damage caused by three dislocations over the past few years. Between that and semester finals, it wasn’t a very delightful week. Now that I’m on the mend and have over three weeks of down time, I plan to do some reflecting on the past year and some planning for 2010.

And as long as I’m taking hydrocodone around the clock, I’m going to be doing plenty of sleeping as well.

Until next time, happy Holidays!

College students face a cruel irony during the days leading up to finals week. Just when we need it the most, the motivation to be industrious is suddenly in very short supply. A barrage of tests and papers (3 and 1, respectively, for me) stands between you and that glorious drive home. With finals in the rearview mirror, a Goo Goo Dolls CD to sing along too, and almost a month of family, friends, food and relaxation ahead, it’s almost hard to describe how exhilarating that trip home really is.

Alas, work is still to be done. That’s why, as I write this on a Saturday night, I kind of look like the guy in the picture below:

Now, if you’ll excuse me, I need to get back to my ethics self-assessment. If anyone has any good insight on deontological ethics and its application, I’d be glad to hear it!

Image Source

This is a confession. About a week ago I caught myself starting to get caught up in the hysteria currently surrounding precious metals. As I was browsing the online store of a bullion company, looking at silver coins, it dawned on me; am I participating in bubble madness?!

Back when gold was under $1,000 and silver was wallowing in the $13-14 range, I was content with the small amount of precious metals I owned through the Central Fund of Canada (ticker symbol CEF- split evenly among gold and silver bullion) and a few assorted coins. It was enough to diversify out of equities and the dollar somewhat, but not to the extreme where I expected society to collapse at any moment. Just last week though, with gold and silver hovering near $1,200 and $20 respectively, I suddenly felt the urge to consider adding more. Then, as I thought back to the principles of Graham, I realized how illogical my thinking was.

I like to poke fun of market bubbles and the people who perpetuate them, many of whom end up buying high and selling low. Last week served as a good reminder of how incredibly easy it is to fall in this trap though.

“It’s different this time…”

So goes the dangerous reasoning that ensures that bubbles happen repeatedly. And who knows, maybe it is different this time. Maybe gold is headed for $2,000+ in a matter of months, $5,000 by the end of next year, and hindsight will tell me I’m mistaken for not buying now. That doesn’t change this fundamental fact though- those who become more attracted to investments as the prices rises are doomed to eventually lose big. That’s like rushing to the store to load up on cereal because the price was jacked up. Ridiculous, right? Investments get riskier as their price rises and less so when the price falls, but we often act in the exact opposite of this truth.

The problem is that the “it’s different this time” argument sounds more and more appealing as the bubble continues to inflate. We fear that we’re missing the boat. The market gets more press time, further making us want a piece of the action. It starts to seem fail-proof. The fundamentals between $1,200 gold and $1,000 gold a few months ago weren’t that much different; a weakening dollar, an ever-growing federal deficit, financial industry worries, central bank gold-buying, etc. But more people want gold now than they did several months ago mostly because it has been thrust into the spotlight, even though it’s riskier now than it was earlier. If it’s not already in a bubble, my prediction is that this self-perpetuating cycle will continue until it does pop somewhere down the line.

I heard a commercial for some gold company claim- “with gold is setting record highs, there has never been a better buying opportunity”. I wonder how many gold coins they’ve sold with this completely backwards reasoning?

If you were bearish tech stocks in ‘99 or housing market in ‘04, you might have been considered loony at the time. Fast forward to today, and now you seem like a genius. Could the same thing happen with metals?

Thankfully I came to my senses before I bought anything. In fact, I decided to take a small profit on some (but not all) of my CEF holdings- about 17% in roughly 16 months. If it turns out we are in a bubble, I’ll get to reenter at a much better price. If metals continue their incredible run, hopefully I can avoid doubting my decision to sell and safely ignore the growing frenzy.

]]> http://shulticefinancial.com/2009/12/07/bubble-behavior/feed/ 0 http://shulticefinancial.com/2009/11/30/simplicity-simplicity-simplicity/ http://shulticefinancial.com/2009/11/30/simplicity-simplicity-simplicity/#comments Mon, 30 Nov 2009 12:00:36 +0000 shultice http://shulticefinancial.com/?p=488

That is the cry of my new anti-consumerism hero, Henry David Thoreau, in probably his most famous work- Walden. I still hold a soft spot for Tyler Durden as well, but compared to Thoreau he is a little off-the-wall.

If you haven’t read Walden, I recommend changing that ASAP. It’s a tedious read at times (especially if you aren’t 100% awake), but well worth it. The funny (and disappointing) thing is that one of Thoreau’s key messages- shunning a life of needless consumption and luxury, and instead living simply, is much more relevant today than it was in the mid-1850s. If HDK can see how materialistic society has become, I for one do not want to know what he has to say about it…

Especially on Black Friday, the unofficial holiday where we celebrate by rushing to the store in the middle of the night to buy more crap we don’t need and often can’t afford. It reminds me of a commercialized version of trick-or-treating, except that the goody-seekers have to wait in obscenely long lines and sometimes trample each other in pursuit of whatever the hottest must-have item is. Also, these treats don’t come for free, although with a handy-dandy credit card you can avoid worrying about that fact for the time-being.

Thoreau would most definitely be blown away by it all. Here’s a small taste of the philosophy in Walden:

“Most of the luxuries, and many of the so-called comforts of life, are not only not indispensable, but positive hindrances to the elevation of mankind.”

Interesting. Was this guy really an American? We must not have invented the materialist-driven American Dream yet.

“No man ever stood lower in my estimation for having a patch in his clothes; yet I am sure that there is greater anxiety, commonly, to have fashionable, or at least clean and unpatched clothes, than to have a sound conscience.”

Boy would Thoreau be confused by the paradox of fashionable jeans today. Wearing old jeans that have been remedied by a patch? Preposterous! Buying $75 Abercrombie jeans that were made with holes in them? That makes you cool.

Heading into the heart of the holiday season, we should keep Thoreau’s message of simplicity in mind. That’s not to say we need to do as he did; drop everything, venture deep in the woods, and live primarily off of homegrown beans, but instead to question and reconsider the materialistic, unnecessarily complicated world in which we live. Simplicity doesn’t mean deprivation- it means ignoring and getting rid of the burdensome to concentrate on what’s most important.

“Yo, that 60 inch LED HDTV is pretty slick! Just remember though, it’s unlikely to leave you any more fulfilled at the end of the day.”

Image Source

When I began investing a few years ago, I settled on TD-Ameritrade as my broker of choice. They’re the only broker I’ve ever used, but it’s hard to imagine one that I’d be happier with. I would (and I do) recommend them to investors of all experience levels. There are a couple key reasons why:

1.) Their commissions are straightforward:

Their fee-structure is pretty easy to grasp: $9.99 per trade, no strings attached. Other brokers (ahem, E*Trade) advertise a lower cost, but only if you make a certain number of transactions per time-period (think day-trader); most of us would be charged a higher rate ($12-15) that not-surprisingly isn’t advertised in commercials.

2.) No maintenance or inactivity fees:

Some brokers not only charge you when you trade, but charge as well when you do nothing in the form of inactivity fees (I believe E*Trade is guilty again) . Apart from the fact that it royally sucks to be charged to do nothing, it promotes the active-trading behavior that is likely to get many inexperienced investors in trouble.

3.) Excellent customer service:

The first time I called their customer service center, I was pleasantly surprised to hear a fellow American on the other end of the line. When you simply want an issue addressed as quickly as possible, it’s always helpful to talk to someone who is fluent in English. I’ve called them with a range of questions regarding my account, and have always been satisfied by the timely and effective responses on their end.

~

I am in no way connected to TD-Ameritrade relationship that would compromise an objective review (though if you are considering signing up I’d be happy to provide a referral code ). I’m just a satisfied customer who figured I should spread the word on a quality service. Others may have catchier commercials, but I don’t think TD-Ameritrade’s substance for the money can be topped. There’s plenty to keep in mind when it comes to investing- you know you’ve found a good broker when it isn’t among these concerns.

“…the cash register is the daily voting booth in democratic capitalism. We don’t have to buy products that destroy or from companies that harm or are unresponsive. If we want business to express a full range of social and environmental values in their daily commercial activities, then we, too, will have to express a full range of values and respond to the presence or absence of principle by how we act in the marketplace.” –Paul Hawken, The Ecology of Commerce.

Political elections often have critical implications, and we pay an awful lot of attention to them, but Hawken’s words are dead-on. Formal voting is an occasional event, but the real voting, whether we realize it or not, takes place on a daily basis. The decisions we make as individuals affect our collective well-being just as surely as those made in the Oval Office.

We apparently have a lot to complain and worry about a lot in a world seemingly controlled by big governments and big corporations, but it’s our own actions that helped create and continue to foster these unpleasant realities. The things we buy. What we eat. How we use energy. These seemingly private choices all have very real impacts on the world:

• Participating in rampant, excessive consumerism is voting for continued degradation of the earth, its resources, and oftentimes its people. Buying a lot of unnecessary crap may stimulate the economy, but it’s definitely not stimulating any positive gains for humanity.

• Eating a lot of cheap, processed foods is a vote for unsustainable agricultural practices. Despite what it seems like, that seemingly harmless McDonald’s meal didn’t appear out of thin air upon your ordering it. The harms that result from industrialized agriculture are tremendous in scale (The Omnivore’s Dilemma is an great book on this subject). Suddenly French fries don’t sound nearly as appealing…

• Using an excessive amount of fossil fuel for home and transportation is to vote for energy instability and environmental harm. What irks me about this one is that the energy-gluttonous among us seem to be the first to complain about high gas prices. Is it just me, or is that hypocrisy at its finest?

“Cast your whole vote, not a strip of paper merely, but your whole influence. A minority is powerless while it conforms to the majority.” Henry David Thoreau, Civil Disobedience.

This is something I need to consistently remind myself of. It’s an easy concept to grasp but far tougher to put in practice on a daily basis. I consider this a public reminder to myself to work on doing just that.