Investing Strategy — From the Mouths of Babes

Is investing easy enough for children to do? Evidently so! Paul B. Farrell, author of ‘The Lazy Person’s Guide to Investing‘ wrote about how an 8-year-old crafted a portfolio that not only outperformed the S&P 500, but also his own professionally managed pick.

How did he do it? Well, primarily by investing in low-cost, well diversified mutual funds that cover the entire market. Sound familiar to all the FPU people out there?

Luxury or Necessity?

Pew Research has published some survey results on attitudes around what the average American considers a luxury and what is a neccesity. The list of things that the average person “can’t live without” has multiplied in the last decade, incorporating items that are new (such as technology and computer-related items) and previously available (microwave ovens, air conditioning, clothes dryers) alike.

While this isn’t particularly surprising, the survey tells a lot about American life in 2007. The thing that grabbed me was this statement:

… one pattern was consistent: wherever there has been a significant change in the past decade in the public’s judgment about these items, it’s always been in the direction of necessity. And on those items for which there are longer term survey trends dating back to 1973, this march toward necessity has tended to accelerate in the past ten years.

I think this tells us a lot about the American mindset and the power of marketing in our culture. We don’t just want it, we want it now, regardless of the consequences. It doesn’t really matter if we need it, or if we can afford it, only if we can get it really quickly.

Million Dollar Habits

Michelle Singletary (from the Washingon Post) has some very wise advice having to do with the the true cost of smoking. She looks at the habit from a couple of different perspectives:

  • The potential cost of getting sick.
  • The daily or weekly cost of tobacco.
  • The cost of spending a few dollars a week instead of saving for retirement.

Michelle is counselling Carl, a 38 year old man with a $100/month habit. She figures (with conservative estimates) that channeling this money into a 401K would translate to $100,000 at age 65. When confronted with the numbers, her client has decided to quit smoking and instead focus on saving for his families future. Good for him! I am sure that armed with knowledge and willpower he can improve his life.

Million Dollar Habits

Carl isn’t really different from the rest of us, we all have our million dollar habits. It could be Starbucks, McDonalds, Marlboros, or even iTunes, but a few dollars spent here and there can be the difference between steak and Alpo at retirement.

Michelle gives us a great example of the power of compound interest, and how spending with a purpose can change our lives. Remember, if someone saves $100/month between ages 25 and 65 it will be worth $1,000,000. That is $3/day!

Now, can you change your life like Carl?

College Students and Debt

There is a story on CNN about the debt problems of college students today. While I don’t think the advice is strong enough from the experts, there is some good information, especially for parents of teens.

My favorite part was an example of outstanding parenting …

Ashley Shaw, a freshman broadcast journalism major at Howard University, says she shops with cash, not credit, so she’s aware of how much she can spend. But even without the credit card, she occasionally runs into trouble. She recently overdrew her checking account during a shopping trip.

Right now, Shaw isn’t in any credit or student loan debt. However, she expects to take out student loans in the near future to cover her college expenses.

“As a younger teen, I actually received a credit card and didn’t know my spending limit and that kind of thing, so I maxed out the credit card and was penalized for it, and that’s why I don’t have one now,” Shaw said, explaining her previous troubles with credit.

This is the kind of parenting I want to to for my own children. Ashley sounds like a young woman with an excellent head on her shoulders, who continues to learn the right way to handle money through personal experience. She was lucky to be a teen who had parents who were both engaged and forgiving, and it looks like she is definitely heading in the right direction.

Personally, I hope that she can stay out of the student-loan trap, but it sounds like she has a good enough head on her shoulders to be resonsible and take care of business.

New FPU Class

I am going to be a volunteer coordinator for FPU at Oak Hill UMC in Austin, TX on Sundays from 5-7pm, starting starting 1/21/2007. The class will be 13 weeks long, possibly with breaks for Easter Sunday and the Super Bowl (this is Texas, after all). There are still are openings available.

Some things to note:

  • Materials will be available at the class, or can be purchased through the FPU website.
  • Childcare and youth activities are provided at at no cost.
  • Scholarships are available.

There will be an orientation on 1/21 at 12:30 PM @ Oak Hill UMC, please contact me or come by if you are in the area and are interested.Morgan

Welcome

Welcome to the Unofficial Financial Peace Blog (or UFPB for short)!   As this is the first posting, things are pretty sparse around here.  If you are absolutely dying to read something, you can find out more about us or more about Finanical Peace University in the Blogroll.

Morgan