For this post we will focus on bonds. U.S. Treasury bonds to be exact.
You can purchase bonds in a variety of ways, through a marketplace or directly from the Treasury. To buy bonds directly from the U.S. Government you go to treasurydirect.gov, create an account and you can purchase bonds in $100 increments as you please (while there you can also buy notes and t-bills, but those are for another discussion). You can also purchase bonds through ETF's and Mutual funds that have been curated and managed by various companies (say Vanguard).
How you purchase your bonds will determine how you accrue interest on them. If you buy direct then you will get interest every 6 months until maturity (say 30 years) at which time the purchase price of that bond will be returned to you (say a $100 bond). If you buy your bonds as part of a product (ETF) then you will receive a distribution (dividend) every so often, into perpetuity, until you sell your shares of that product.
Now, things can get tricky when you go to sell your bonds. If you purchase your bond at $100 and 2% interest, and rates go up to 2.5%, no one is going to give you face value ($100) for a 2% bond, when they can go get a new bond at the current rate. That means if you want to sell your bond, you will have to sell it for lower than face value (less than $100) to create an artificially higher yield for the new buyer, so they can have a competitive rate. This really leads to danger if you have large bond holdings and rates increase, your ability, and profitability of selling those bonds goes way down.
However that DOES NOT mean your bonds are actually worth LESS than they were the day before. They simply cannot be RESOLD in the market place for their full face value anymore. However, if you hold on to them, they still maintain their same face value to you, and their same yield. So don't let anyone tell you that your existing bond holdings are worthless if the Fed raises rates. Your bonds have the same value, so long as you retain them. This is different for packaged products such as ETF's and mutual funds, since they are traded in the market place, and can lose significant market value.
There are also corporate bonds and other forms of debt issuance that we can discuss in a later article.
Living in the suburbs is a selfish thing to do. Not only does it cost you more, it costs your neighbors and the entire planet more. The cost to build individual stand alone homes is significantly higher per person than living in the urban core. Today we will be exploring some of the costs associated with living in the suburbs.
Phase 1: The city has to run utilities all the way out to these neighborhoods to service them. This has a high initial cost and significantly higher maintenance cost due to the distance covered, and the number of people served per foot of piping.
Phase 2: Building the houses. Each house has a minimum of 5 sides exposed to the outside ambient temperature. This means they are far less efficient. They also lack common resources (one primary sewage pipe going into an apartment building can service many apartments) and individual wall structures, and roofing.
Phase 3: Living in your McMansion (if the bank paid for it, you cant afford it, so get over yourself debt slave). Daily costs such as heating and cooling rooms that you hardly use, watering a lawn you probably don't use. The pathetic attempt to plant generic trees in the spirit of "being green". Lack of any properly sized porch or community amenities that bring neighbors together. Over sized appliances which say "HE" on them, but reverse that by being gargantuan.
Phase 4: The joys of commuting. You wake up early and hop in your bank financed vehicle, crank up the Pandora and prepare to spend the next 45 minutes trapped in your mobile planet destroyer. Well done. Just to get to work you needed to waste all the C02 to build the vehicle in the first place, now you get to spend every day filling the air with more C02, just so you can get to work. Lets do some math! 45 minutes, twice a day, 5 days a week, for lets say 49 weeks a year (you work for a company with paid time off, which is how you think you can afford the McMansion and car)! That totals: 367.5 hours a year or 15.3 days per year sitting in your car, literally just trying to get to work. This doesn't count fuel stops and maintenance trips either. So you've wasted over 2 weeks of your life, loads of money, and helped destroy the planet. All so you can have a white picket fence and SUV.
The cost: You're a bank slave and waste so much money on this nonsense that retirement, especially early retirement is improbable. Even if you make enough money, you've heavily contributed to the destruction of our one planet.
Now lets talk about the urban dweller:
Phase 1: The city runs piping from the street where it already existed to your lot where the apartment complex is located, so maybe 50-70 feet of pipe from street to building main.
Phase 2: A 6-10 apartment complex is built where everyone uses the same utility mains, and can have anywhere from 2-5 common walls depending on where in the structure your particular apartment is.
Phase 3: Living in your apartment. You share walls with your neighbors and protect each other from outside exposure to ambient temperatures. Your rooms are appropriately sized and there is a community lawn. Between the 6-10 of you the lawn finally gets some use. To save space you have smaller more efficient appliances.
Phase 4: The joys of commuting. You get to wake up early and stroll down the beautiful sidewalks, with street trees and sining birds. The early morning sun warms your cheeks as you sip your coffee. You see your neighbors on their jog and wave hello. You've burned calories and raised your moral on the way to work. You walk in stress free and energized. If you live in the urban core, but a bit further from work you can bike, which is great cardio, and if you go slow you can avoid sweating in your nice clothes! Or you can take city transport where the C02 emissions of that vehicle are divided among all the passengers, and per person it emits much less than individual transportation. All in all, you saved money, saved the planet, and had a healthier happier life.
The cost: New shoes every 2.5-3 years.
Make your choices, but I'd rather live near other people and have more money, instead emitting an excess of C02, and having less money.
Money buys you options.
Thats no joke. When you have money you have the freedom to choose. You can choose where you live, choose where you get healthcare, choose where you go to school.
Without money you are restricted to a very narrow set of options and have lost some freedom. You have lost the freedom of mobility (whether it be socially, economically or physically). You have also lost your freedom of choice, which I think is the most important.
With money I can make the choice to eat better. I also have the choice to move or change certian aspects of my life. Money is choice, choices are freedom.
When people ask me what I want, I tell them the truth "I want to be free". Sometimes they think I am joking or giving them a hard time, but it's absolutely true. Right now I have nowhere near enough money to make that choice. So I forego my freedom now, in hopes of attaining it later.
Save money and discover new choices for yourself. Good luck.
In this article I will discuss how market crashes / corrections (or whatever else you want to call it) actually help young people.
A market crash is when markets shift downwards faster than anticipated, and go lower than people expected. The most recent cases would be the 2001 and 2007-2008 crashes / corrections.
"GenY, wtf man, I have a lot of money in markets we can't have a crash!"
Agreed, for people who are already heavily invested, or close to / in retirment a market crash is the last thing they want happening. A crash near retirement could delay someones dreams of escaping the work place. And worse for already retired people they may have a hard time financing thier lifestyles.
However, there is another side of the coin we should look at. The Vanguard S&P 500 ETF - VOO is up 96% in the last 5 years currently costing around $207 a share. Thats a lot of money for the same product people were buying for $105 just 5 years ago. Basically that means you are paying $102 more for the same product, with the same returns and distributions as someone who paid $105. Thats simply too expensive for many young investors.
Let's imagine there is a 15% market crash (markets drop by 15%). So theoretically that fund would cost $176. So you get a 15% discount, and the people who bought in 5 years ago have still made $71 or 68% profit in 5 years, giving them an average yearly increase of 13% < still excellent.
This same principal applies to housing markets. During the 2007-2008 crash a lot of people lost their homes. However, there were savers who could finally afford a home once prices came down.
So are market corrections (as we will now call them) a completly bad thing? No, I don't think so. So long as it is within the bounds of reason, and the drop is not so steep that it ruins people. Because honestly, should we be expecting more than a 13% retun on investment year over year? A 19% average increase year over year does seem a bit exaggerated. It's great if you are already on the party train, but for everone else, they get left in the dust.
Negative Externalities are everywhere, but what exactly are they?
"A negative externality is a cost that is suffered by a third party as a result of an economic transaction."
This basically means a transaction happened that you were not part of, however it still had a negative effect on you. Such as someone who does not own a car having to breathe car polluted air.
Should people who cause negative externalities be required to pay for their effects? It would be incredibly hard to track who is affected by who, but on a general level we could impose penalties for people who are creating negative externalities for other members of society. Such as a pollution tax based on how much pullution your car puts out, charging for plastic grocery bags, or increased rent for tenents with pets. These increased costs could pay for mitigation efforts to help offset the problems created for other people. Such as more money for green energy, litter clean up projects, or sound proofing the walls for other tenants.
These increased costs could be considered unfair for the people paying them, but is it fair for them to degrade the quality of your life because they want to do things that are not confined to only affecting themselves?
I think just about everyone creates negative externalities in some way. However you should always try to be considerate, and mitigate the reach and damage of your activities.
Let me know what you think in the comments below.
Is spending money a crazy thing to do? Why do people spend money? What do we get out of it?
In this article I will try to understand those questions.
Why do people spend money? Well for lots of reasons, first you have to spend money to live. Food and housing are not free, and some how healthcare isn't either, so to live in this country to must spend money.
There are however reasons to spend money beyond covering your subsistance. Many people I know, including myself will spend for pleasure. Whether it's to go out for a night with the guys or spending on some frivilous consumer item, we tend to spend money on all kinds of nonsense, but why? In the moment it is hard to resist the urge to spend, the urge to be like those near you, and to be able to partake in the activities they are partaking in. But do you need it? I think the answer is usually no. However we need to evaluate what you get out of spending to understand why you want to spend.
What do you get out of spending money? You get to participate, you get to be apart of whatever activity everyone else is doing. Spending money is also powerful, it gives you the ability to request something, and someone give it to you. People can also buy things to try and show status or success, (though a truy successful person will not feel so empty that they need to project it onto other people) they are seeking attention or approval, perhaps both.
GenY, I think you're talking bullshit mate, you buy stuff all the time. Right you are. It's a process, to migrate from the cult / religion of mass consumerism to the world of sanity and logic is not instant. But I am working on it, I've got a nice reserve of capital buit up that I am not wasting on an Xbox One (I've got a 5 year old 360), or a better car (same car since I was 18 - 5 years ago) so when it comes to big purchases (wastes) I am improving. However I still struggle to deny smaller items that are just as worthless (eating out / partying).
So if you're spending money, what should it be on? Well that is entirley up to you. However, I think it's logical to spend money on education and experiences (within the bounds of reason). Especially if you can mix the two :) .
All right, what's the summary here? Avoid buying nonense, don't buy worthless consumer junk, and try to find something more valuable than happyness via cheap trinkets. A smart man told me "happyness is a fleeting feeling, so I dont chase it, instead I chase peace".
The last few weeks have been very interesting. The S&P has closed at record highs multiple times and cryptos continue to gain ground as gold lost traction.
The question is, if markets are high what should you do?
Well, the mantra goes "buy low, sell high" so the simple answer may be to buy into the product that has lost the most ground and has the most room for recovery, however that may not always be the case.
In marches our new President-Elect, like it or not (not). And with that comes a level of uncertainty as to what will happen with the national, and even global economy. How do you make stratiegic moves if you cannot know what general direction the new policies will drive us? Will regualtions continue to be relaxed and the Wall St. bonanza continue? Will that lead to a economic decline when the bubble pops, or can they keep delaying the inevitable?
The question for individual investors then becomes - in times of uncertainty, what should you do with your capital? Luckily you have a few options on the table.
You could put your money in gold, now that it has fallen over November. You could stack cash, build a CD ladder. You could delve into crypto if you have the time to learn the ins and outs of the ecosystem and feel comfortable. Or you could simply continue putting excess capital into markets.
I suppose one of the safest things to do, if you own a home, is to avoid buying securities, and instead pay down your mortgage with that money until you see how it plays out. However if the market keeps rising then you have missed those gains. Then again, if the market has a correction you will have avoided putting more of your immediate cash flow into it and mitigated some of your short term losses.
Those are exaples of things you could chose to do. Now, I'll tell you what I would do (keep in mind, this 100% does not mean you should do it!) If I owned a home, I would stop allocating my mothly reserves to markets / securities and instead use that excess capital to pay down my mortgage until the new President-Elect gets into office and we see what is going to happen. Then once policies are published and we understand their effects on the market place I would be in a good position to re-evaluate.
But GenY, you don't own a house and neither do I! So what are you actually going to do? Honestly I do not know. I suppose I'll continue making my small contribution to long term gold savings. And of course the mandatory portfolio will be contributed to. However, for the rest of my excess capital every month I am at an impass as to what to do with it. I suppose I will just open a 3 month 0.34% CD at Ally Bank and re evaluate when the CD expires. That goes against my principal of not keeping money in the bank, but where else should it go? Let me know in the comments below!
As part of my consolidation concerns expressed earlier I am attempting to move all of my taxable holdings into a single platform. However, account transfers come with a cost. So instead, I've decided to liquidate my Loyal3 holdings, when profitable, and migrate that money into Robin Hood. I will also be liquidating most of my individual stock holdings in preference of ETF's.
As such, here are some recent trades!
Total profit: $8.61 or +12%
Total profit: $105.67 or +51%
Total profit: $3.34 or +0.91%
No, we probably can't save the world like superman, or end all human suffering.
However, we can take steps to improve our global environment, and the best part is, it will also save you money!
Okay GenY you crazy rebels, you have my attention, how do we go about this?
Here is a list of simple yet powerful things we can do to improve the environment and save money from hardest on top to easiest:
Live close to work so you can walk or bike there. That way you do not have to burn gasoline every day.
Stop eating (or drastically reduce) your beef consumption.
Change all your light bulbs for high efficiency LED's and unplug everything in your home that's not being used.
Recycle anything and everything you can.
The easiest one of all: Stop buying nonsense.
That's about it. If everyone did their best to achieve these goals, our environment would be so much better off.
Check out Leonardo DiCaprio's National Geographic documentary Before the Flood on YouTube for free: https://www.youtube.com/watch?v=90CkXVF-Q8M
I was talking about finance with a friend recently and they were surprised to learn that I keep minimal amounts of cash in the bank, usually less than $100 at any time. They wanted to know why, so I thought this site might be a great place to tell everyone why I don't have cash (on hand or at the bank).
Physical cash - It can be lost or stolen, and is guaranteed to be destroyed by inflation.
Cash in the bank - the more cash I have in the bank more money that bank can lend out (see post below to read about fractional reserve banking), making a profit and creating inflation, all while paying me next to nothing, no thanks.
The next question was, what I would do in the case of an emergency if i don't have any cash? Well, I would put said emergency on my credit card like everything else, then pay it off next pay period (every 2 weeks), like everything else.
Do you have anything but credit? Of course! I have my Goldmoney card, which is simply a debt card that connects to physical gold holdings. So at any time I can sell some of the gold, and have that cash value put on my Goldmoney debit card, then it works 100% exactly like a debit card. I suppose calling it a pre-paid card would be more accurate, except it has unlimited instant refills via your gold holdings.
What if something happens and we lose access to electronic banking? No worries, Goldmoney prints off a physical ledger every day and store it in a secure vault. To steal value out of that account is impossible. They just take out yesterdays paper ledger, and be like "Yep, says here Mr.GenY had 39 grams, give him 39 grams!". So unless someone steals the physical medal (lol good luck, and it's insured anyways) then there is no way someone to lose their savings against their will.
Why do I prefer doing this? Well, I don't like money in the bank for reasons stated above. Also, I feel safer with my long term money being held in physical gold. Let's take this month for example. The market isn't doing so hot, but the value of gold (my savings) has gone up, exactly like savings should. It works with me and helps preserve my labor instead of betraying me.
> Gold is up +20.1% from 1 January 2016 to 1 November 2016.
So, should we have cash? Do we need it? Who knows, but personally I use it as little as possible.