Anecdotes about my mother

I don't know if this will be a regular thing, but every now and again a funny (less in the funny sense, more in the interesting) memory of my mother comes up, more so now as she nears the end of her life.

A couple of weeks ago I was in Germany visiting her, and one of the many things we talked about is the US presidential election.  She's always been a staunch conservative; self-reliance and all that.  Though we were pretty poor growing up (we lived in a 2 bedroom apartment with 4 kids), my parents refused to go on welfare, seeing it as a cheat to the system.  Anyway, another thing I distinctly remember growing up was her distaste for Donald Trump.  For roughly the same reasons as mine today: he's sleazy, he made his money by cheating investors, not paying his debts (strict conservative no-no), etc.

Let's be honest.  Donald Trump is hardly a Republican, but many of my conservative friends who previously disliked him now support him merely because of his current role.  I was curious to see if she would too.

When I asked her, she said she hoped Trump would win.  I was surprised, until she went on to say that America needed a wake up call, and Trump would be the one to crash the country fast enough so people would wake up.  If Hillary is elected, we'd continue on our gradual slide, but that would take too long.

Yup, I guess.

Germany trip

I just got back from a week-long trip to Germany with my girlfriend to see my mother, who is in the late stages of cancer (renal, I think, though she has massive tumors all over her body, which are pushing on her organs and making it hard to breathe sometimes).  Still, she's survived longer than anyone expected (3.5 years and running, on a timeline of 6 months), and she's in high spirits, though she's weak.  She attributes her continued life to foregoing all forms of conventional treatment, reasoning that chemo and radiation therapy would do more harm than good, and even if it did give her an extra year versus six months, that year would be a sucky one.  Quality of life, you see.

Though she has been taking echinacea extract, which she swears by.  My mother has very strong ideas about a lot of things, and health is one of them.  She's German, and a strong (read: stubborn) lady.  I remember about a year ago, when she told us that "Ach, I'm so lazy, I can barely clean the windows anymore" when referring to the increased tiredness the cancer was giving her.

This is the view from my mother's hospital room.  She is really enjoying the stay, and compares it to a hotel

Anyway, it was a really good trip.  We flew in to Munich, and took the train to a small town (24k people, 4,000 within the city wall itself) in Bavaria called Nordlingen (there's an umlaut over the o, but I can't figure out how to type it).  Nordlingen is a town built on the site of an old meteor crater, and it's round as a result.  It also has the distinction of being one of only 3 towns in Germany that have intact city walls around the whole town.

It was also the inspiration for the anime show "Attack on Titan," though the shape was about the only similarity.

Germany is pretty cool.  Bavaria has a lot of countryside, many small towns interspersed with fields.  It's so green.  Here's an example of most of what I saw on train rides

The food is really good, and so cheap, compared to the US.  I know part of it has to do with the exchange rate (it's about $1.10 per Euro at the moment), but even at its height, the food was relatively cheap.  One thing Germany does real well is baked goods.  Best croissants I've ever tasted.  You could get them for 29 cents at the supermarket (50 cents to 1 euro at a bakery).  We took this picture at breakfast one morning.  Not the greatest, but there you have it.  Those striped ones were actually pretzel croissants.  The doughnuts actually tasted like American bread rolls, which are slightly sweet.



Every day, we'd walk to the hospital about 3/4 mile from the city and visit my mother for a few hours, and sometimes we'd just walk around the city.  On one early morning walk, before the jet lag had subsided, we spotted a familiar figure in a window.

Adolph Kitler

Or Katzler for my Germans.

The best parts of the town were the cathedral and the wall.  We went for a walk on top of the wall, which was covered for the most part.

This is what most of the wall looked like

There was a bar on/in the wall

Parts of the wall were repaired and made into an uncovered bride type thing

It's pretty crazy to see buildings with dates from the 13th century.  Then you get the weird juxtaposition of traditional architecture and modern technology, because, y'know, people live here.

The cathedral was a 90 meter tall (300 ft) church in the center of the town

Getting to the top was a lot easier than the last time I was there 3 years ago, and the view is killer.

Us at the top

I'm always reminded of the scene in the movie In Bruges where Colin Farrell's character tells the fat American tourists they'd be better off not climbing the tower, and they get pissed and do it anyway, and get a heart attack.  Pretty sure fat American tourists are the reason they had to reinforce the walkway around the top of the tower

Though it's so narrow I don't know if fat Americans could fit.

Towards the end of the trip we went to Schoss Neuschwanstein (which I pronounced Noishwangshwang up until pretty much the last day), which happens to be the inspiration for the Disney castle.

This is a picture from the internet:

And here's a picture of us with the castle in the background:

We did go all the way up, but holy schitt there were a ton of tourists from all around the world.  Though I can't really complain, since... so were we.  Here are some more pics of the castle:

On our last day there, we visited Munich, which, while being a large city, feels fairly spaced out.  It's very pretty, very old, and has a distinctly European vibe to it.  We went to a palace with these huge gardens out front similar to Versailles, and walked around downtown with all its restaurants and museums, walking through what I think was called the British Garden.  It was similar to Central Park, and there was a large river that ran through it.  Due to heavy rains, the water level was higher than it usually is, and when it flowed under the bridges, it would come out faster on the other side, which some people were using to surf. 

In summary, Germany was beautiful, and I had a great time.

Clinton's taxes

So Hillary just released her 2015 returns, and they look pretty good.  Last year the Clintons paid an effective tax rate of 34.2%, which is higher than what most millionaires typically pay.  It's certainly more than Mitt Romney who was criticized for paying a paltry 14% in 2011. Trump has been pressured to release his taxes in the name of transparency, because it'd be kind of hypocritical for him to talk about some of the stuff he talks about and then get away with paying negative taxes, Mr. Burns style.

Release the hounds!

I don't actually know how much Trump pays in taxes, though I'm sure he uses every trick in the book to avoid paying as much as possible, from deferring capital gains, which is very legal and something we should all try to do, to funneling his profits through charity and other borderline illegal schemes.  The reason the Clintons' effective tax rate was so high, from what I understand, is because most of their income last year came from speaking fees, which is what's called earned income.  Earned income is taxed at the normal rate, which caps out at just under 40% for federal.  However, most rich peoples' income comes in the form of unearned, or passive income from investments, such as dividends, interest, rental real estate, and capital gains.  Since the rich control Congress, tax laws tend to be favorable toward unearned income, most of which caps out at a relatively measly 20%.  That's why rich people tend to pay so much less in taxes (proportionally), but also why we all need to save and invest so we can take advantage of these tax benefits.

Did you know that if you're in the 15% tax bracket, you will pay nothing in federal income on capital gains?  It's true!  What that means is that a married couple who doesn't work but has investments can make up to almost $100,000 a year on their investments and not pay a penny in federal taxes.  That's insane.  Strive for that. 

Of course, non-qualified dividends, interest, and short term capital gains (stocks sold within a year of purchase) is taxed at the normal rate, but still...  It boggles my mind that it's possible to get away with paying little to no tax if you play your cards right and allocate your money appropriately.  And of course, the money you save on taxes can be rolled right back into your investments, making you even more money.

and the hounds!

Don't get mad at the rich for not paying their "fair share."  Or do; I don't care, and they don't either.  Your anger won't change a thing.  Politicians are bought by the rich and pass laws that benefit them.  Instead of getting mad, shoot to become one of these rich people who can take advantage of these loopholes.  The rich may be getting richer, partly due to their entrepreneurial mindset, high savings rate, and the aforementioned tax loopholes, but there's no reason you can't add yourself, your family, and your descendants into the ranks.  America has always been the land of opportunity, and while it may be harder nowadays to move up due to low entry wages and the extremely high cost of housing in big cities, it's far from impossible.  You owe it to yourself to achieve financial independence, and there's no reason you can't.

Trading is the key to wealth

Today, I'd like to share with you the true secret to creating wealth, and that is trading.  Buying stocks low and selling them high at key points, getting out before it goes down.  Buying and selling constantly is the true key to creating fast wealth.

Lol, no it isn't.

I have read thousands of articles on finance, and studied dozens, if not hundreds of finance books, and many investment styles, and one thing that stands out to me is that passive investing is a far superior strategy than gambling in the stock market for the average investor.  The more I learn, the more concrete this concept becomes.  That's not to say there aren't people who don't do very well by picking stocks.  Warren Buffett has handily beat the market by about 10% annually on average over the last half century.

But for every Buffett, there are a hundred wanna-be's, people who claim to have found the perfect strategy to beat the market.  They'll dazzle you with figures, and give you a specific timeframe in which their stock picks did very well, or show you a handful of stocks they recommended back in the day that went up by a whole bunch.  Of course, what they don't mention is that they also recommended a bunch of other stocks that didn't do so hot.  Incidentally, these people are either trying to make money off you by selling you their method, or are trying to brag.

Here are a couple of examples I want to highlight.  Both were teenagers, and in both cases, the financial media pounced on their stories, making it sound like these kids were investing geniuses.  The first was a 17-year old whose name virtually guarantees he'll get "randomly selected" every time he flies.  A Stuyvesant High School student by the name of Mohammad Islam (no, really) was rumored to have made $72 million trading stocks.

Apparently trading also adds a year or twelve to your appearance 

Here's an excerpt from the original article on Business Insider: "While having caviar and apple juice with his buddies, Islam acknowledged that his net worth was in the "high eight figures."  Later that day, he was going to meet a hedge funder who "basically wants to give us $150 million."  At only 17, Islam has already rented an apartment in New York, but his parents won't let him stay there until he turns 18.  He also bought a BMW even though he doesn't have his license yet."

I snorted when I read the bit about the caviar.  Anyway, the second one was a 16 year old with a name I can't pronounce, who has made $43,000 IN 3 YEARS! (capitalization mine) by picking stocks.  The financial media loves to highlight this kind of stuff, because, much like winning the lottery for poor people, rich(er) people want to believe they can successfully gamble in the stock market and beat out everyone else.

But when you look closely, the truth comes to light.  Turns out that tubby sack of sad with the most jihad name I've ever heard (and I spied on the Taliban for several years, so I've heard a few) had made it all up.  He hadn't made a dime in the stock market, and the apartment and the BMW were all imaginary.  He was just a teenager who liked the fame as long as no one asked very hard questions.

As for the second one, yes, he did make $43k, which amazed CNN, but when you look closer, it's less  than impressive.  This kid's rich parents let him play with a quarter mil of their retirement money (that's $250,000 for you squares).  He invested in popular stocks, got lucky, and STILL underperformed a total market index fund (his annualized return was about 5.4%).  Indeed, near the bottom of the article, it says that "like other investors, Sridharan has struggled this year, admitting he got caught up in a few bad trades."  So basically he got lucky for a couple of years, but his luck ran out.

That's why you have to be wary of anyone claiming to have a special system, or who claims they can beat the market year after year.  Statistically, they're full of shit.  Trading is a zero-sum game, meaning that for one person to win, another has to lose.  So anyone can do well one year, or maybe for a couple, but over time, traders tend to revert to the mean, which means their losses neutralize their gains, giving them an average of zero.  Actually, even less than zero.  A lot of traders end up in the negative, because of all the fees they have to pay every time they trade.

So take every trading success story with a huge grain of salt.  As an average investor - and let's face it, you're extremely average - your best bet to make money is also decidedly boring.  Regular, passive investing in index funds will probably make you more money than swinging for the fences and trying to play with stocks, or with derivatives like options.  And for the love of God, don't ever borrow money to invest.  That's called leverage, and it's one of the main reasons for the 2007 housing crash.  The one exception would be if the return is guaranteed and the interest rate is lower than your guaranteed return.  That's called arbitrage, a guaranteed profit.

My investing philosophy is pretty simple.  Dollar cost average into index funds, maxing out your tax-advantaged retirement accounts first.  For the layman, that means putting the same amount of money every month into funds that mimic stock indexes like the S&P 500, which contain the 500-ish strongest and largest companies in the U.S., maxing out your 401(k) and IRA before you invest in other accounts.

Of course, I have some positions in single stocks such as Tesla - which I think will do very well over the next couple of decades - but they only represent a portion of my overall net worth.  The majority of my money is in index funds.

Don't day trade

About a week ago, I finished buying 50 shares of Tesla Motors, a plan I’ve had for some time.  I believe in Elon Musk’s vision, and I think the company will do very well.  My goal was to get them for $200 each, for a total of $10,000.  There’s no science to this choice.  I’ve often read “If you had invested $10,000 in stock Y in year X, it would be worth this many millions today,” so I went with $10,000 as the amount, and wanted a round number, so I went with 50.  Tesla has been very volatile over the past couple of years, mostly because it’s hard to value the company, as they haven’t had any earnings.

Less than a week after I bought the shares, the stock was up to 216, which made me a profit of over $800, and when I told someone at work about this, they congratulated me and said I should take the profits and treat myself.  This goes against everything I stand for, for the following reasons:

1)      You haven’t made or lost any money until you sell the stock, so right now it’s all on paper

2)      I have a long time horizon.  I bought those shares to hold for the next 15 years, and I will hang on to them even if they drop below my original purchase price.

3)      The stock is at 226 right now, so I would have missed out on $500 extra of profit if I had sold when they told me to, and

4)      Most importantly, I do not day trade

Day trading is when you buy and sell shares of a stock in the same day to make a quick profit.  For most people, it’s a terrible way to make money.  It’s difficult, if not impossible, to time the market, and constantly buying and selling is a recipe for disaster, due to fees.  Trading is a zero-sum game.  For someone to win, another person has to lose, and chances are, the person on the other side of your trade knows more about it than you do, and is buying or selling for a good reason.

I know several people who used to day trade.  They all tell me it was a bad idea, and if they had held on to the stocks they traded, they would be a lot richer than they are now.

"Screw you" money

Have you ever heard the term "screw you" money, or some variation thereof?  Probably not, since it's not generally used in polite company.  But you probably understand the concept, and it's something you definitely need.  "Screw you money" is having enough money to be able to tell almost anyone to fuck off.  Most people would call it financial independence.

Is your boss a jerk?  Do you hate your job?  Legal troubles?  Medical issues?  Creditors?  There are very few situations in life where having enough money wouldn't remedy your problems and make you not have to kiss anyone's ass.

You need this, because the most important thing money can buy is freedom.  Freedom from a toxic work environment, a crappy neighborhood, crushing debt.  Freedom to do what you want (within reason) and pursue your passions.

Those who live paycheck to paycheck are slaves.  Those who carry debt are slaves.  You need to get out of debt, and work on having enough money to not have to work if you find yourself unwilling or unable to.

What would happen if you lost your job and couldn't find another one?  What if for some reason you didn't qualify for welfare, unemployment, or any other kind of assistance?  I've been in both situations and it's terrifying.  Too many people spend their entire paycheck on frivolous bullshit because they think they'll always have one, or if they lose their job, they'll be able to find another one.

The concept of "screw you" money is very appealing, but most people think they'll never be able to have it, unless they win the lottery or something.  I'm here to tell you that's not true.  As I've mentioned before, all you really need to do is save up enough money so that when properly invested, it's producing enough income to last you for the rest of your life, a self-sustaining "fuck you" fusion reactor, if you will.

Like this, but like, throwing off money instead of heat and radiation

You may also think you need an amount greater than you'll ever be able to save, but that's also not true.  All you really need to last you forever is 25 times your annual desired expenses.  So say you wanted to retire today with an $80,000 annual salary for the rest of your life (which would increase with inflation, so you can buy the same amount of stuff today as in 50 years), you'd multiply that $80k by 25, and it gives you $2 million.  All you'd need is $2 million dollars.

Alright, so maybe that's a lot. But say you lower your expenses a bit, to $30k a year (which is very doable, depending on where you live).  You would only need $750,000 invested in the stock market to throw off $30k in today's dollars for the rest of your life.  You could walk out of your office proudly baring the one finger salute, and never have to work again, as long as you maintain your standard of living.

Here's John Goodman explaining the concept.  In case this gets removed from Youtube or something, it's from "The Gambler."  The position of fuck you:

To place yourself in the position of "fuck you" it's important to start early, save as much as possible, and invest it.  There are many people who have retired super early.  You do not have to work until you're 65.  I'm currently working on my "screw you" money, and as long as things go according to plan, I'll be financially independent by 45 or so.  Maybe earlier, though I doubt I'll stop working.  It'll just be nice to be able to finally relax and free myself of the worry that comes with poverty,  I've encountered some setbacks in life that have left me cynical but realistic, and have shown me how truly necessary financial independence is.

I hope you get it too.

Life insurance example

I've previously talked about the different kinds of life insurance and how term is best for most people.  I say most because I'm sure there are people out there who could benefit from the other kinds.  Getting to the point of this post, here's an illustration of a real insurance policy one of my friends was kind enough to share with me.  Obviously, the name and information of the person and the company have been redacted for privacy, and so the company doesn't sue me or whatever, but I've circled the points I'd like to draw your attention to.

This particular policy is a variable life insurance policy, which is a permanent life insurance policy with an investment component.  The policy has a cash value account, which is invested in a number of accounts similar to mutual funds.

Now that you've all snoozed off, allow me to put that in plain English.  Not only do your dependents get paid a bunch of money if you die (like a regular life insurance policy), but the insurance company helpfully invests your premiums for you, and you don't even have to croak to get paid!  How fucking cool is that?

"Of course, it costs a little more, but it's worth it."  
"What was that?"

"Oh, I was just mumbling that it costs a little bit more that term, but let me redirect your attention to something else."

"Wait, how much extra?"

"Ah, don't you worry yourself about that.  It's worth it.  Let me just dazzle you with a bunch of figures."

That's the gist of the spiel most insurance salesmen (or women, whatever, I'm equal opportunity) will run by you, and to the uninformed schmuck, it sounds awesome.  And it IS all fine and dandy, except for one crucial point they tend not to cover - these policies charge fees; a lot of them.

This particular policy you can see above was purchased at the beginning of November 2007, when the insured was 19 years old, for a death benefit of $400,000.  The monthly premiums are $116.50, and the current cash out value is just over $5,200.  To put that into perspective, a term policy for the same amount costs maybe $25 a month.  To date (11/2007 - 09/2015), this person has paid out $11,067.50 in premiums.

Did you notice the difference between the cash value and what was paid?  It's less than half.  That's not even taking into account the stock market returns.  Let's pretend this same person had purchased that $400,000 term life insurance policy for $25 a month, and invested the remaining $91.50 in an S&P 500 index fund.  The cash value today would be just over $12,000.

In summary, you're probably throwing your money away if you purchase anything other than a term life insurance policy.  If someone is trying really hard to sell you something (other than advice), they're not doing it to help you out.  They're doing it because it's lucrative.  And more fees for them equals more costs for you.

And they'll probably say something like this as well

Now for the obligatory disclaimer: I'm not a licensed financial anything (yet) so I can't legally give you advice for money.  This is all my opinion, and if you take my advice, that's on you.  However, licensed advisors like Dave Ramsey and Suze Orman (and pretty much anyone not trying to sell you a product) tend to agree with me.