Index funds

I try to keep an open mind in life; basically, as the facts change, my opinion changes.  Over the past few years, I've been studying investing and related topics, and believe me, there are thousands of people out there, each of whom claim to have found the secret to making it big in the stock market, and they all say everyone else has it wrong.  So far, the best advice I've found is from people who take a long term approach to it.  Basically, they say you need to do some research, put your money in a mix of stuff, and leave it there, for like 50 years, tweaking it every so often.  What you DON'T want to do is become a day trader; basically one of those people who makes money (or tries to, anyway) by buying and selling stocks, trying to capitalize on the fluctuations of the market.

On the surface, this looks like a good idea.  Buy a thousand shares of Apple stock at 10 am at $70 each, and sell them at 3 pm when they're at $71.  Hey, look at that, you just made a thousand dollars!  Not bad for a single day's work. But what happens if it goes down, to $69 a share?  You've just lost money.
Let's keep with the Apple theme, since it has the largest market capitalization in the world.  If you had invested money in Apple 10 years ago, in the summer of 2004, your money would have increased by over 4,200%.  That's 42 times what you put in.  $10,000 in Apple stock in 2004 would have turned into $429,786 today.  That's including the Great Recession.  Of course, this isn't typical.  Most stocks don't go up by that much, but what I want to impart to those who worry every time the market dips for a day or a week - Apple was down on almost half of the trading days during those ten years.

That's just like the stock market.  In the short term, it goes up and down randomly, but fortunately over time it goes up more than down, and money is made.

Now we get to the meat and bones of this article.  I recommend investing in index funds over individual stocks.  Feel free to skip this paragraph if you know what they are already, but for those who don't; they're a type of mutual fund that have most of the same stocks as an 'index', such as the Dow Jones or the S&P 500.  A mutual fund is a group of stocks you buy together, and the idea is that if one stock's price goes down, others rise in value, bringing up the value of the entire fund.  Here's how it works (borrowed from here):

Imagine you start with a $1.00 investment.  In any given year, your investment can go up by 30% or down by 10%.  It's essentially random, much like the flipping of a coin.  If the coin comes up heads, your investment goes up by 30%.  For tails, you lose 10%.  So after the first year (first coin flip), one of two things will happen:
- Your investment is up by 30% so you have $1.30
- Down by 10% so you have $0.90

Either way there's a 50% chance of it happening.

But if we split our money in half and add a second coin (a second stock), there are one of four possibilities:
- Two heads: both fifty cent chunks went up by 30%, making them worth 65 cents each, totaling $1.30
- Two tails: Both are down to 45 cents each, totaling 90 cents.
- One head, one tail: One half is worth 65 cents, the other is 45 cents, totaling $1.10
- One tail, one head: One half is worth 45 cents, the other is 65 cents, totaling $1.10

Now, each of these outcomes has an exactly equal chance of happening, 1 in 4.  But notice that in three of the scenarios, you earn money and in only one do you lose money.  Over time, flipping one coin or flipping both will give you the exact same long term returns: an average of 10% per flip.  But flipping both coins makes it much less volatile.

If two stocks can reduce the risk by that much, imagine what dozens, or even hundreds, could do!  That's essentially a mutual fund.  And I like index funds better because the fees tend to be lower.

Student loans

Did you know that student loans are one of very few kinds of debt that can't be discharged in bankruptcy?  As in, you're so poor and in so much debt, that you can't afford to make the minimum payments, or it's seriously affecting your life (or both), and decide that filing for bankruptcy is your only recourse.  Sucks for you, though.  That magical wad of cash the school gave you to blow on booze and books?  Yeah, you still gotta pay that back.  Doesn't matter what the government says.  The school's still got your balls in a vice.  Or your ovaries.  Whatever, anatomy isn't my strong suit.

I'm against debt in general, unless it's positive debt.  For me, positive debt falls into one of two categories:
1) Borrowing money to fund the purchase of something you need, such as a car or a house, and it's not reasonable to expect someone to have that amount of cash on hand.
2) Money used to invest in something, where the returns are worth getting into debt and having to pay back a bunch of interest.  Investing in yourself, such as taking accounting or welding classes, or getting a degree in something that will most likely get you a decent job; falls into this category.

Of course, if you can save up to pay for a house in cash, that's always the best scenario, but not likely to happen.

Anyway, when I started college back in 2004, I promised myself I wouldn't take out student loans.  Mostly because I was scared of not being able to pay them back if I couldn't find a job.  Eventually I realized I would be unable to continue without some kind of funding, so I joined the military.

Well, I'm out now, and I recently started school again, thanks to the magic of the GI Bill.  School is 100% paid for, though my other expenses are not, for the moment, due to a lengthy paperwork snafu, so I have to get a job on the side to pay rent and stuff.  But, if you've been following my blog, you'll know that I managed to save up a bunch of money in the last few years of service, and even if I don't find a job, I'll have some savings to fall back on.

Even though I was a linguist in the military, and thought I'd do it for life, the universe had other plans for me.  I got really good at giving people financial advice, and my friends advised me (heh heh, get it?) that I should do it in a professional capacity.  So when I was nearing the exit, I thought seriously about it, and decided that it'd be a good idea.

So I enrolled in California State University near beautiful San Diego, and I'm pursuing a degree in Finance.  The plan is now to become a Certified Financial Planner (CFP).  We'll see how that goes.  I have 2 to 2.5 years left in school, and I'm relatively certain the economy (and therefore the job market) will be in a good place when I finish.

Credit Cards

Credit cards.  They're portable, they're taken almost everywhere, and you're less likely to get robbed on your way to a furniture store if you're carrying a card versus several large in cash.  Credit cards are pretty awesome.  Or they're terrible, no-good tools of the devil designed to ruin your life.  All depends on your philosophical (and financial) point of view.

Let's start with the latter.  Most people hate the phrase 'credit cards' because they invoke thoughts of greedy companies luring you into a life of endless debt.  That generally tends to happen for one of two reasons:

1) You've just become an adult (legally, anyway), and have discovered that there's no shortage of offers for "free" money being thrown your way, much like wieners at female Engineering students. 

2) You're broke as a joke, and the only way you can afford to put food on your card table and gas in the tank of your piece of shit '81 Honda Civic is by putting those purchases on a credit card.

In scenario 1, the "free" money comes courtesy of the numerous credit card companies anxious to get your business.  They tend to attract your attention with caps lock, bright colors and large font, along with appealing offers like "Sign up now and you won't have to pay back a dime for 6 months!" or "Interest free until March of 2015!"

Now, 6 months is a hell of a long time to an 18 year old. Might as well be never, so you go ahead and use it with a certain amount of relish, because you can now buy yourself pretty much anything your stupid parents were too broke or too stingy to get you.

The card gets swiped and purchases add up, and the devil finally comes knocking, asking for the money back.  At this point, you have the unpleasant realization that you owe a lot more than you expected, and the money just isn't there.  At this point you start questioning the value of money and wonder how feasible/effective blowing up the credit card company headquarters would be, like at the end of Fight Club.  

The only reason you have a beard is that you're too poor to afford razors

In scenario 2, you're generally the head of a household (or sleep in the corner of the dilapidated 1-bedroom apartment you share with 2 other guys because you wouldn't be able to pay the rent all by yourself).  You're working harder than a North Korean prisoner on Viagra, but still can't make ends meet.

In both cases, you pay what little you can, but high interest rates make sure your debt keeps growing, and it's a hole you're never going to dig yourself out of.  I've been through both scenarios, and they totally blow.

But once I dug myself out of debt and started being able to save money, I realized something: Credit card companies are not evil.  They're businesses.  They don't try to trick people (for the most part).  In fact, if you play your cards right (get it?), they can be pretty useful.

You're so punny, brah.  Here's a like.  For rectal use only

My philosophy is that credit cards can be awesome, if you use them wisely.  There are many cards out there that offer rewards points.  Basically, for every dollar you spend, you get a certain number of points, which can be redeemed for prizes, airline miles or straight up cash.

Personally, I think the ones that make you trade in your points for items that have to be purchased from their online store suck donkey balls.  Kind of like those wretched fundraisers they do in elementary school where some company comes around once a year and gets the children all pumped up to sell whatever shitty mass-produced overpriced product they're peddling this year by making lofty promises of shiny toys to the best saleschild.

Of course, only once you try pestering your neighbors and your parents' friends and co-workers, you realize that all THEIR kids go to the same school and are similarly trying to sell the same crap, and the decent prizes turn out to be impossibly out of reach.  How the hell are you supposed to sell $5000 worth of fucking peanut brittle?  And even if you do, the prize ends up being a toy your parents could have gotten at Walmart for like $35 (if they weren't too poor or stingy to get for you, which is of course why you have the credit card now).

Remember this shit?

Anyway, child labor aside, the best cards are the ones that offer you straight up cash-back.  For every dollar you spend, the card gives you a certain number of points, generally equivalent to a penny each, and those points can be traded in for cash, or used to pay off purchases (just like cash).  This concept is pretty sweet, because you're going to buy stuff anyway, so why not just use the card to make those purchases, and get it at a reduced price?

Now, this method WON'T work if you aren't disciplined and just buy anything that tickles your fancy, because the money you earn through the cash back will not make up for that stupidly expensive pair of Jimmy Choo shoes (I had to look that up) you saw in the window and just HAVE to have because that bitch Jenny from accounting is going to be, like, so jealous and you can't wait to see the look on her fat face when you come strolling in with an $800 pair of stilettos.

Which she probably won't even notice because she's so busy whoring around and spreading nasty rumors about you

The card I currently have (because I haven't found a better one yet) is a Barclay Card.  It has no annual fee, and gives me 2% cash back, which means that for every dollar spent, I get 2 cents, which can be redeemed to pay off old purchases when I accumulate at least $25 worth (2500 points).

This is it.  Well, not my exact one; I'm not an idiot

I'm not sure how Priceline and Barclay's are related, but I got it when I was buying an airline ticket online and they offered to knock off $50 if I signed up for the card.  Only when I got it was I made aware of the benefits; namely the cash back, the lack of annual fee, and oh yes, it even has a picture of William Fucking Shatner on it.  

This picture could be used after pretty much every paragraph of the second half of this post

Anyway, I've had it for just over 3 years, and have cashed in close to a thousand dollars worth of points.  And if you don't think that's the tightest shit ever, I'll have Shatner get you out of my face via a complicated series of over-exaggerated gestures.

Happy Valentine's Day

I sincerely hope that all the couples out there a) have a really nice day and b) don't spend too much on bullshit to prove their love.  Fellas, if your girl insists on extravagant gifts to show you love her, you really don't need to be with her.

Though I'm a lonely soul, and February 14th just serves to remind me how no one loves me on any other day of the year, I think holidays are nice, and can help reinforce people's relationships if done right.

As Cracked.com proved, modern-day Valentine's day is a far cry from what it once was, and much like most other holidays, is an excuse for companies to peddle their wares.  I mean, what says President's Day better than mattresses and cars?

Unless, of course, a life size replica of Mt Rushmore were made out of mattresses and crushed cars

But I digress.  It is what it is, and it's not about to change any time soon, so might as well get with the program.  What I find odd, though, even odder than car and mattress companies slashing prices on new rides...

...is that ad for giant teddy bears you may have seen recently.  The basic premise is that flowers and chocolates are, like, super unoriginal, and your girl will react to those gifts of affection by transferring the roses to the trash can and dumping perfectly good box of chocolate on the floor because of how disgustingly thoughtless you are.  But hold the phone!  I know it's last minute and you've been racking your brain for something thoughtful, so we have just the thing!  Get her a fucking six foot teddy bear!  She'll be so ecstatic that she's gonna forget all about you and snuggle up on the couch with that monstrosity as if it just gave her the best sex of her life.

Unlike this one, the bear in that ad doesn't even have a smile on its face.  It just stares off into the distance with cold, unfeeling eyes

That ad is stupid, to say the least.  Chocolates and flowers may be unoriginal, but they're time-tested.  Teddy bears?  What am I, six? 

Anyway, Valentines Day is what you make of it.  I think Mallory has the right idea:

Bohemian Rhapsody

So there I was, one day, in Persian class.  I had previously learned that the word فراموش (faramoosh) means 'forget' in Farsi.  Now you may recognize that as one of the words in a song every drunk likes to butcher when out with his friends doing karaoke, the famous 'Bohemian Rhapsody' by Queen.

One day the teacher finally says it, and I ... oh, I'll just do it verbatim:

Teacher: blah blah bla faramoosh.

Me: Faramoosh?!  ( I look left and right at my classmates)

Class: Faramush!  Faramush faramush, will you do the FANDANGO?  Thunderbolts and LIGHTNING VERY VERY FRIGHTENING!

Half class in a high pitched voice: Galileo
Other half: GALILEOOO

All: GALILEO FIGARO.  MAGNIFICOOOOO!

And we kind of trailed off there because the teacher was looking at us funny.

Goddamn right that was magnificent.

My financial philosophy

Not to toot my own horn or anything, but I'm pretty good with money. Whenever I tell anyone how much I have saved up, I tend to get a few raised eyebrows, a nod of approval and one of these:

But I wasn't always good with money. When I returned to the US at the age of 19, I moved to LA. Due to not having a degree and parents who thought any kind of financial support was on par with socialism, I was forced to work minimum wage jobs, which made me less than $1000 a month, which I think is below the poverty line. Of course, I knew nothing about welfare or employment offices, so I was forced to rely on my meager wages, but that's another story. 

I tend to give financial advice to anyone within earshot, kind of like that hobo mumbling about the end of the world while wedging himself firmly into the 'uncomfortable' zone of your personal bubble. Except people actually find my advice useful, and I don't live behind a dumpster (yet).  And now that you're reading this, you get to be the reluctant receivers of my eager advice.

Here's my financial philosophy, in a nutshell:

1) I can afford to buy a new car (or a boat, expensive clothes, etc) precisely because I DON'T buy those things. I'll explain below.

2) If I haven't saved up enough money to last me the rest of my life, I haven't saved enough, and need to cut back on the non-essentials.

Anyway, so living in LA, I wasn't making enough to get by, and would have to put things like gas and groceries on a credit card, which I was unable to pay off at the end of the month. As you can probably guess, my debt grew. I ended up joining the military and got a steady source of income, but it still took a few years to pay off my debt.

Finally, in March of 2010 I paid off my credit card and my car loan, and have been debt-free ever since. Since then, I have managed to save up (including stock gains) about 2 years worth of my current salary. It's going to be 3x by the end of next year, as long as things keep going the way they are, and if I still have a job.

Anyway, so here's the advice I give people, boiled down to the most basic info:

1) You need to have a good source of income.

You can stop rolling your eyes now. The sarcasm is duly noted. You may think it goes without saying, but it's true. I only managed to save so much because I have a relatively high source of income, and tend to have a lot left over after paying for the essentials.

2) Speaking of which, you need to figure out what's essential and what isn't. Housing, food, clothing and a cell phone are essential; but a mansion, restaurants, brand name clothes and the latest iPhone are NOT. Catch my drift? Cut out as much of the non-essentials as you can.

3) Pay off your debt as quickly as possible, starting with the loan/credit card with the highest interest rate first, and making minimum payments on the others. Debt brings on more debt. The money you spend on interest could have been earning you money in the stock market.

4) When you are out of debt, put 3-6 months' worth of expenses into an emergency fund. Have a savings account or some other account from which you can easily get money if you need it. Now, this part is very important, because let's say you finally finished paying off your debts, but then your car breaks down and requires a bunch of expensive repairs. You didn't start an emergency fund, choosing instead to take the wife out on a celebratory shopping spree with all the money you now have extra every month from not having to pay towards your debt. So what you would now do is put those costly repairs on your friendly credit card and BAM! You're back in debt. Having an emergency fund will help keep you out of debt. 

5) Put your money in an interest-bearing account or in stocks. Keep in mind that inflation is about 3% a year, so if your money's in a savings account (which currently give you about a 1% return), it's actually losing purchasing power. What you need to do is put it in the stock market. Mutual funds are good to start out with. Do some research. Or you can contact me and I can go into more detail.

Going back to my philosophy, you need to forgo the trends and spend less.  Have you ever noticed how Bill Gates and Warren Buffet dress?  I don't think they've gone clothes shopping in 5 years, and when they do, it's to Goodwill.  Rich people realize that the $200 homeboy just spent on the latest Jordans could have been put to much better use in his savings.  I know due to the recession and all, it's currently cool to be fiscally savvy, but trends come and go.

Pardon the crop.  This is the last time I let Hellen Keller edit my blog

Anyway, there you have it.  Take it or leave it.  Oh, and if you have any good websites related to the topic of finances and saving, leave them in the comments.

Localized morality

It occurred to me today, that I am a victim of - and feel free to come up with a better name for it - localized morality.  Something that no one cares about in one place or culture, but makes people go bonkers in another.  I mean like seriously crazy.  The kind of mad that turns one into an enormous bag of douche towards one's fellow man, causing them great misery.

Let's get some background.  I've been in the Air Force for the better part of a decade, and recently came back to learn a second language at the language school I attended right after basic training all those years ago, in [location redacted].  The issue here is that you're forbidden from hanging out with non-prior service students (i.e., people straight out of basic training), like, the same people with whom you spend 7 hours a day in class, and I ended up doing just that.  Which ended up getting me demoted, lost me a bunch of money and will pretty much kill my military career.  Possibly my entire future if they decide to give me a bad conduct discharge.  There's other stuff going on that I'm not going to talk about here, because it's still under investigation (yes, seriously), but suffice it to say that if it weren't a training base, I wouldn't be in this much trouble.  As a disclaimer, I was wrong and a dumbass, and if I could go back and change it, I would. But that's not the point in question.  Back to the point.

Did you know it's illegal to own and consume chewing-gum in Singapore?  No, seriously.  The natives believe the Aspartame causes mental diseases, like left-handedness.  As punishment, the police beat you with a bamboo cane and then pour fire ants on your wounds for 48 hours.  Or something.  Whatever, research isn't really my strong suit.  And before giving me another one of those incredulous looks you're so fond of, consider the fact that things like eating a McRib with your left hand, which I'm sure we've all done in moments of confusion, can give someone amoebic dysentery in a Muslim country.  Or have them put a fatwa on your descendants.  Or something.  

Jeez, relax, it's not even real pork.

Anyway, the point is; does anyone know if such a term (the one in the title) exists?