Life: A fragility, easily broken without warning

On March 12, 2009, In Random, By John

The phrase “here today, gone tomorrow” is widely used, and the simple yet poignant importance of the saying is often overlooked. Today, I learned of the death of a man who was a brother and uncle to several of my friends. This man was 47, and passed away in a tragic car accident. He was simply driving along the road, when an oncoming semi jackknifed on icy road conditions. The trailer of semi came around and killed the man. He was pronounced dead at the scene of the accident. Through this accident, I learned of another man that died suddenly from a brain aneurism at the age of 34. It all got me thinking, and when I’m thinking I’m generally being challenged.

At times in my life, I hold back. Whether it’s a fear of rejection, no time, no energy, whatever, I sometimes look back on those moments in life and think about how they could have been different. Armed with my past experiences and the tragedies I learned of today, my body began to do a search. I was searching for an answer. A reconciliation with how fragile life really is.

This evening as I ran a few errands, my body was in full-out reconciliation mode. In fact, I had to turn the radio off because my inner voice was speaking so loudly that the white noise of life was becoming a distraction. With the lack of white noise, I entered windshield time – you know – me, God, and the windshield – so often characterized in my life by driving for thirty miles or more, looking around, and realizing I don’t recall much of, if any, of the drive.

As I worked through my windshield time, I kept being reminded about the fragility of life. The lack of a promise for tomorrow, or for that matter 10 minutes from now. I continued to be led back to an assortment of thoughts. Am I taking chances and leading a full life? Am I prepared to leave this world without notice? Am I leading a life that enriches those around me? Am I a good role model for those that look up to me? Am I accountable for my actions?

The more I thought, the more I came to the realization that I need to pay more than just lip service to the answers to my thoughts. Because I have no timeline, and no advance warning system as to when I’ll leave this world, I need to live life to the fullest. What will I do different? I’m not sure. But I do know by living my life in the context of an awareness of the fragility of life, I will be able to answer a definitive yes to the questions in the last paragraph!

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Investing: If you’re building a pile, you’re doing it wrong

On March 11, 2009, In Random, By John

In my last post, I talked about how investing in the stock market was a bad investment when viewed in the context of inflation. In the recent months, I’ve had opportunities to do some soul searching – real deep soul searching – about investing, and life.

Last year, I was invited by a friend and mentor to attend a charity golf tournament, dinner and auction. The event was a fundraiser for Northern Voices – a center for young children with hearing loss that enables students to communicate through the use of spoken language, and helps families prepare their children to reach their full potential.

My expectations for the day were pretty minimal – play a round of golf, have a few drinks, enjoy the company of friends, and head home unaffected by the day. Well, three out of four isn’t bad – is it? You see, I was affected by the day – in a deep and disturbing way. It wasn’t the deep part that scared me. No sir, it was the disturbing part that I struggled with for almost six months.

I am a product of a family that prides itself on hard work. In fact, I’m active in our family business and work hard – often times excessively. I also work for several other companies on a freelance basis. As a result, my free time is limited, and my financial resources exceed my expenses – resulting in some disposable income that I somehow seem to squander on assorted non-necessities.

Rewind six months to the charity golf tournament. After the tournament, there is a silent auction, dinner and live auction. Having attended many similar events, I’m pretty used to the “sales pitch” and assorted other means of getting into my checkbook. In fact, as the auctioneer for several benefits and similar events, I’m also quite accustomed to making the pitch. As a result, it’s a bit more difficult to get me to support a specific cause. So, I’m sitting at dinner and the program begins, and several children get up and talk about how the support of the individuals in the room have made an impact on their lives – how literally because of the support and activities at the center, they’ve been given the gift of hearing. I’m sure you can already guess how that played out with me. I was pretty much tearing up, and grabbing my checkbook at the same time.

For nearly six months, I reflected internally on that moment. Not so much about the cause but about the real impact it had on these children. The more I reflected the more disturbed I became with society and more specifically myself. I struggled inwardly for months about how I was choosing to live my life, and spend the resources entrusted to me.

About a month ago it came to me. When or how, I’m not sure. It just came to me. I realized that we as a society, and me specifically, work our butts off to make a dollar so that we can save a few cents of it to put on a pile for retirement (you already know my thoughts on the primary pile we’re encouraged to use), or worse haphazardly squander it away. That’s when it hit me. If each of us took the 10% we’re encouraged to save, and actually invested the funds into people that need the assistance, where would be as a society? I know, you already give at work to the United Way or Salvation Army, or give at church. I’m not talking about that kind of giving. I’m talking about giving directly to those in need – skip the red tape, the bureaucracy, the middle man – give it direct to those in need.

Armed with that information, I’ve been talking to friends and family about my realization – if we all stopped investing in trying to increase our pile and started investing in the lives of those in need, how much better off would society be? The good news is they all agree we’d be much better off. The bad news is I think it’s mostly lip service. In fact, several people said that’s great, I’ll take the extra from your pile. Argh, that’s not the point, and that’s not the intended recipient.

I’ve resolved that I’m going to make a difference going forward. I can’t always do 10%, and sometimes I can’t do anything. But I can avail myself to do something when I can afford to do it! And, forget about me giving funds to a large corporate charitable group. I want to see my efforts making a difference to the fullest extent possible. I’ll be supporting smaller organizations, families I know could use an extra $100 here and there, or individuals that could use a hand with a project or some food. It’s certainly the least I can do, and the payoff so much richer than a financial investment gone good. What are you doing?

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Stock Market and 401k: A losing investment

On March 8, 2009, In Random, By John

In America (and many other countries around the world), we’re taught to save, save, save for our retirements.  The primary vehicles we’re taught to use are the stock market and 401k plans (which are primarily invested in the stock market).  In the current economic times, it’s easy for me to say what I’m going to say, but the more I think about it, the more I think it’s true.

Imagine XYZ, Inc.  They are a large company that produces ABC.  They have a large employee base, and match 401k investments up to 5% with stock in XYZ, Inc.  So, the employee doing the “right thing” who makes $30,000 per year contributes 5% ($1,500) into his 401k and the XYZ, Inc. contributes an additional 5% ($1,500) in XYZ, Inc. stock.  The employee feels good because XYZ, Inc. has matched their contribution.  Yet, really all the company has done is given you a promissory note.  A promise to pay you whatever the price per share is when you come to collect.  There is no guarantee that the 5% match will be worth $1,500 when the employee begins to live off the 401k investment.  In fact, it may be worth much less.  Also in our scenario, let’s presume the employee is loyal and believes in the company he is working for who he works.  As a result, most of his contribution to his 401k is in stock in XYZ, Inc., because it’s a good company, and they’ve been good to him his entire life.

What has happened in that scenario?  The employee has taken 5% of his wages ($1,500) and given them back to the company for their use (by purchasing stock) without any guarantee of the return of the principal.  To entice the employee to do this, the company has said, we’ll match your contribution, because we believe it is important to fund one’s retirement – again a promise to pay with no guarantees.  It all sounds good, but the company is very much coming out ahead.  In effect, XYZ, Inc. is getting a 5% deduction in wages paid when you reinvest into XYZ, Inc. stock (of course, you can invest in other companies, but the overall effect is to reduce your take home by 5% and reinvest that into corporate America).  Plus the money is given interest free, without a guarantee of the return of the principal.  Where else do we give others 5% of our gross income interest free without a guarantee of return of principal and say it’s the American thing to do?  Banks don’t do it – no they secure their investment with tangible property.  Investors secure it with a piece of paper called a stock certificate.

Of course, the larger argument is that all things will increase in value forever, and your investment today will be worth much more in the future.  One only needs to look at how the This of course is the sound financial principle called inflation.  Of course the government and large companies argue that some inflation is good.  In the above example, the employee provides $1,500 in todays dollars, and maybe gets a return of $2,500 in future dollars.  Yet, when viewed against inflation, that increase (if there was even an increase and not a decrease) is minimal.  Take a peek at this excellent article to understand more about the real numbers of inflation at work on investments: DJIA (Dow Jones) Adjusted for Inflation.

From that article, comes this startling quote:

Over the past 10 years, the DJIA has increased from 9358.83 to 10825.17. That is fine and dandy. It appears that you have gained … until you take a closer look at the data. That represents an annual rate of return of only 1.47%. Inflation adjusted is -1.44%. That’s right, you have lost money! When you factor in a 1% fee for assets under management, and capital gains tax (currently at 15% of the 1.47% annual gain), you’ve lost even more … down to -2.66% per year LOSS!

The article goes on to look at figures for 40 years (…the DJIA has had an annual rate of return of only 6.28%, or rather 1.56% adjusted for inflation. Factor in the management fees and capital gains tax, and you still have LOSS … to the tune of -0.38% per year.), and 80 years (the DJIA has an annual rate of return of only 4.51%, which is 1.23% adjusted for inflation. Again, a total LOSS of -0.45% per year for 80 years!).

It’s true, a person can obtain good returns on investments in the stock market, but there is no guarantee of any return of principal, and when reviewed contextually with the rate of inflation, there is actually a stronger likelihood of minimal return of “true” principal.  An individual would have been much better off not gambling and simply putting the funds in an account that was paying interest at a rate greater than the rate of inflation.  The individual would have preserved the strength of his/her investment, and actually made a good investment!

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