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March 09, 2013 – Comments (14)

I like Alex Dumortier - TMFAleph1 - a lot, and I always read his Fool articles and I usually like them too.  The most recent - Is This the Fed's Rally? - is currently in the blog sidebar and can be read by clicking my link (if it works; hopefully it will.)

His point leads back to something I've been thinking about since 2007-2008, when a money market fund "broke the buck" briefly; cashing out of the fund was returning less than a dollar for every short-term dollar you had invested in it.

It reminds me of something a famous investor said, and I paraphrase here: "If you elect to participate in the price movement of stocks, because you want the historical outperformance of stocks in terms of ROI, you should realize that you are electing to participate in all the price movements of stocks - the upside and the downside."

Well, in 2013, I have come to realize that this is true of anywhere I can put my money.  I work as a doctor and a small business owner; the small business provides medical care and employs me as well as a couple other docs.  I like running the business but I do it for free; taking care of sick people and the associated things doctors also do are what provides my revenues.  I get paid in the form of a check; I depost the check in my bank account and can withdraw that money as cash if I choose.

But what is cash?  When I was a kid gas was 50 cents a gallon; now it's $5 a gallon.  When I was a kid a chicken cost a couple of bucks; now an unpoisoned chicken that tastes like the chicken I remember costs $20.  The dollars I am using to purchase that chicken looks the same; the average doc in my specialty made twice as many of them when I was a kid working a 40 hour week, as I do working about an 80 hour week.  That's not inflation adjusted dollars; that's just dollars.  Forget inflation stats; forget purchasing power; I'm talking about things I actually pay for, and I love eating chicken and I have to drive places, so I pay for those things quite often.

People assume I'm a 1%er; I'm not.  The house is underwater; I'm still paying off the car; and no matter how hard I try I can't seem to get ahead in my bank account.  Haven't contributed to my retirement fund in years; just got divorced.  Lot of reasons for that; one was I could tell I was never going to be able to make a retirement contribution supporting this person, whose economic contribution to the relationship consisted of spending $80,000-$100,000 a year post-tax in return for a series of educational lectures on the topic of why I am a 1%er and should quit worrying about money.  (There was also a series of lectures on why her 40 hour a week volunteer position was real work and should be counted as an equal work contribution to the relationship.  Funny, that never came up in the divorce proceedings, in which I was instructed to pay a large lump sum in lieu of support.  I like lectures; I have been to a lot of Universities and I find that often you learn something.  Eventually I did!)

I met a man recently as a patient.  He works for USPS as a custodian after honorable retirement from his 20 year hitch as a Navy sailor.  62, he is in the prime of health - had an accident that brought him to my attention - but he exercises daily, is a working artist, has passion for life, loves women, loves his family.  The man does not have as much money as I do, cannot command as much working capital as I can, but I count him far wealthier than I.

The point of this blog entry has to do with asset allocation.  I have to make choices about how much cash goes into my personal bank account and what I do with it.  I have money in an IRA; basically my choices are cash equivalents, stocks, bonds, REITs, MLPs, precious metal proxies, and a variety of levered instruments.   None of these are stable in value in terms of purchasing power; if you say stocks are no good, you have to explain why cash equivalents are better (and I don't think that particular argument is good, short medium or long term).

Do I love living in my house?  I like it fine; but do I like the way the mortgage keeps me on the cash payments treadmill?  I love my work; do I love it enough to neglect my health and my relationships over it?  These are tough questions and I think I've been ignoring them, and, by default, getting the answers wrong.  They are questions about working capital and cash allocation; but I have another asset, the only asset for which there truly is a fixed supply: the hours remaining in my life.

Be careful with your asset allocation, folks.  It's a jungle out there; bring your flashlight and your machete.  You're going to need them. 

14 Comments – Post Your Own

#1) On March 09, 2013 at 10:18 PM, Valyooo (99.54) wrote:

Great blog, as always.

Sorry to hear about your marriage.  I find it very odd that the people who claim to not care about money are the ones who spend the most and work the least.  Mind boggling.

Since I have always been in finance, I know a lot about retirement planning, yet I am one of the few in my field who actually kind of disagrees with it.  I think it is important to sacrifice and save for the long run.  At the same time, I enjoy working, and never want to retire.  I want to make a bunch of money, and then spend it all on cool stuff...a house with a bookshjelf that you pull a book and the wall opens, like in cartoons.  I don't want to be 90 years old sitting on a pile of gold having never enjoyed myself.  I want to sacrifice what I can afford to sacrifice so I can live it up in the not-so-distant future.  I don't know if I will be alive when I am 59 1/2.  I am 23 1/2.  I haven't even been alive half that time.  I know my life is limited.  I never went to be unhappy.  So, I save for the future, but I cannot blame those who don't, as long as they are fully aware of what they are getting themselves into. 

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#2) On March 10, 2013 at 5:48 AM, DrGoldin (99.68) wrote:

"I was instructed to pay a large lump sum in lieu of support."

Small consolation, probably, but at least you paid your lump sum and are done with it.  Right?  Support has a way of hounding you forever.

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#3) On March 10, 2013 at 8:37 AM, fewl10 (< 20) wrote:

Still paying off the car....

Awesome, MF.  That alone tells me this person's trumpet isn't worth hearing.   

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#4) On March 10, 2013 at 11:17 AM, awallejr (79.57) wrote:

The house is underwater; I'm still paying off the car; and no matter how hard I try I can't seem to get ahead in my bank account. Haven't contributed to my retirement fund in years; just got divorced.

Well there was your biggest problem right there.  I recently negotiated a divorce for a colleague/friend of mine and told him before he says "I do" again I get to vet that person.

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#5) On March 10, 2013 at 12:17 PM, awallejr (79.57) wrote:

I did want to comment on this too:

but I have another asset, the only asset for which there truly is a fixed supply: the hours remaining in my life.

You also have a "soul" the quality of which ultimately defines each of us in the end.

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#6) On March 10, 2013 at 8:06 PM, ikkyu2 (99.24) wrote:

Huh, of all the things I revealed about myself, I didn't really expect someone to take issue with the car loan.  It's at 0.9%; that's more or less free money with the way the market's been performing the last few years.

It'll be paid off next month, though. 

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#7) On March 10, 2013 at 10:10 PM, awallejr (79.57) wrote:

Ikkyu2 ignore comment #3.  He does not understand comment #5.

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#8) On March 11, 2013 at 11:50 AM, chk999 (99.97) wrote:

Awesome blog! As always, the interesting question about any situation is what are you going to do about it. Getting rid of the "sea anchor" and paying off debt are good things to do.

 

And I totally agree with Vallyoo, a book case that is really a door totally rocks. Check out these folks for awesome bookcase/doors. http://www.hiddendoorsbydesign.com/showroom  I saw their booth at the home show a few years ago and they totally rocked. 

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#9) On March 11, 2013 at 1:35 PM, lemoneater (78.55) wrote:

Ikkyu2,

Somehow your story reminds me of Doctor Lydgate in Middlemarch (a Victorian lit classic) who marries Rosamond, a social climber, who cares more for her own comfort than anything else. Knowing that yours is a common relational pitfall is interesting, but not that helpful to you. I'm sorry that such a disillusioning experience was yours :(

For my part, I find your blogs quite useful and readable. I prefer to get my investing advice from fellow human beings rather than robots or people who never experience any kind of challenge whatsoever.

Two statements from King Solomon. "When riches increase, they are increased which eat them." 

 And for awallejr "He [God] has put eternity in their hearts..."

Wealth is relative, but quality of life is even harder to measure.

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#10) On March 17, 2013 at 7:47 AM, fewl10 (< 20) wrote:

"I'm still paying off the car; and no matter how hard I try I can't seem to get ahead in my bank account"

The premise behind you getting a more visible posting on MF is that you know something about money that others do not, and of course that MF knows something about finding people that know something about money.  

This little comment proves neither is true.  Was your awesome 0% loan from a bank and used for a purchase of a used car from another private party?  I didn't think so.  So anyone who thinks they're getting a good deal from someone who is setting the price of the new product (in this case, a car) and provides a 0% loan from the same party is a SUCKER.  :)

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#11) On March 17, 2013 at 3:10 PM, awallejr (79.57) wrote:

You should have quit while you were behind Few.  Your reading comprehsion is sorely lacking.  Did you even bother to consider the divorce impact?  Instead you harp on a guy making a car loan payment?

Your "premise for visibilty" is yours and no one elses.  Your last sentence alone is completely irrelevant to the original blog.  You might as well have said anyone who buys the Brooklyn Bridge is a sucker.  Yes but so what.

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#12) On March 23, 2013 at 10:11 PM, ikkyu2 (99.24) wrote:

I lack the ability to evaluate a modern used car on its mechanical soundness.  I chose to buy a new car with a 4 year service agreement - all inclusive - because I am an extremely light-footed driver and a car I have driven 50,000 miles is on average in better shape than one the average driver has put 20,000 miles on.  I also like my car and it makes me happy to drive in it; that's got some value, though it's hard to put a dollar figure on it.

That part of this story turned out to be the right choice, all told, I think.  I certainly don't regret it and plan on keeping the car another 6-7 years.

I am sorry that my getting sidebarred annoyed you, fewl10.  I agree that getting sidebarred doesn't have much to do with the quality of any given blog entry.  However, if you don't think the things I am talking about are wisdom, I'd suggest they may simply be lost on you.

I also have a lot more folks who've liked my blog entries over the years, and a much higher CAPS score than you do; I'd suggest focusing on those two things if you want your own entries sidebarred regularly.  I have been playing CAPS for about 4 years longer than you, so you have some catch-up to do in both departments.

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#13) On April 03, 2013 at 12:02 PM, miteycasey (30.68) wrote:

I have another asset, the only asset for which there truly is a fixed supply: the hours remaining in my life.

 

I wish I could get my wife to understand this...

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#14) On May 02, 2013 at 11:42 AM, L0RDZ (81.88) wrote:

Jesus didn't  have a  wife...

http://www.youtube.com/watch?v=DSwG9Tojg9I

 

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