To Roth or not to Roth

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As you enter the world of investing, one of the first decisions you need to make it whether to open a Traditional IRA or a Roth IRA.  Of course, I’m taking for granted that you’re using an IRA to save money, because we know that being smart with taxes is one of the most important things you can do.  As you read this, remember that I’m not a tax expert, but here is how I look at this issue.

These IRA cousins are both tax advantaged, but they go about it in different ways.  With a Traditional IRA, you are allowed deduct your contribution from your taxes that year; however you pay taxes on the money when you withdraw it in retirement.  Conversely, with a Roth IRA you contribute with after-tax dollars but then when you withdraw the money in retirement it’s tax free.

So basically with Traditional and Roth IRAs, you’re making a choice between paying taxes now or later.  If you lived in a world where your tax rate didn’t change over time, there would be no financial implications in the choice between the two IRA types.  The math would work out the exact same.  However, we don’t live in that world.  We live in a world where your tax rate goes up the more money you make.  In this world, we want to pay taxes when our tax rate is at its lowest.  So where does that leave us?

I did some quick estimates of what someone’s marginal tax rate would be in a high tax state (California—where the Foxes used to live) and a low tax state like Florida.  I did this at three different income levels: $50,000 (when you’re just starting out), $100,000 (after you’ve been working for a while), and $20,000 (when you’re in retirement—remember you’ll spend more than that but only $20k will be taxed as income).


High-tax state

Low-tax state

$50,000 (early working career)



$100,000 (later working career)



$20,000 (retirement)



Wow!!!  Look at that.   We all knew that we would have the highest tax rate when our income peaked.  But did we really expect that we’d be paying double the tax rate when we were starting out compared to when we were retired?  That’s a huge difference.

Now, remember that the major difference between a Traditional IRA and a Roth is when you pay your taxes.  For a Traditional IRA, you’re getting a deduction while you’re working so that $5000 you contribute in your early years gives you a $1667 tax deduction ($5000 x 33% tax rate), and a $1850 deduction ($5000 x 37% tax rate) in your middle years.  Of course you’ll have to pay taxes on that money when you retire, which would be about $850 ($5000 x 17%).  Compare that to a Roth IRA where you’re paying taxes on that $5000 during your early years ($1667) and your middle years ($1850) in order to avoid paying taxes in retirement ($850).

In a world where we want to maximize our portfolio by minimizing our taxes (legally, of course), the answer seems clear—GO WITH A TRADITIONAL IRA.  The back of the envelop math says that going with a Traditional IRA will save you about $1000 per year that you contribute.  Remember that $1000 per year over a working career of 40 years, adds up to about $150,000.  Those are pretty high stakes for what seems like a pretty innocuous choice.

So why do so many people instead go with a Roth IRA?  Why did Stocky Fox himself open up a Roth IRA instead of a Traditional IRA?

  • Don’t understand rules: A major culprit is that many investors don’t understand the tax rules all that well.  Because of that they don’t have a strong opinion on which type of IRA to pick so they go with the one that others tell them is better (which leads to the next reason).
  • Roth IRAs are marketed better: For some reason it seems that Roth IRAs are marketed better than Traditional IRAs.  I don’t know if it’s because “Roth” sounds like an actual name and that draws investors, or what.  But my experience tells me that the average investor would pick a Roth just because that “feels right”.
  • Uncertain tax future: As my loyal readers Mike and Rich have pointed out in the past, the future tax rates are uncertain.  Today we know that a current tax rates make a Traditional IRA a better option, but what if those tax rates change in the future?  It could definitely impact the decision, but who really knows what will happen?  If I could predict the future I would own my own Caribbean island.
  • Get the pain done with: As a kid I used to eat cupcakes upside down; start with the cake and finish with the best part, the frosting.  Some use my cupcake strategy to get the “hard part” over and done with; they choose a Roth IRA because they get the taxes out of the way and then it’s smooth sailing.  This is following your heart instead of your head which may not make sense financially but we all do it.
  • Bad advice: You’ve heard me rail about investment advisers who maybe aren’t all that good.  A lot of people might take advice on which IRA to choose from someone who really hasn’t done the analysis, so they say “yeah, go with the Roth.  Just as good as any.”

I’m sure there are many more reasons but that’s my list.  At the end of the day I think Traditional IRAs are the best choice for most people just because with them, when you do finally pay taxes in retirement you’re probably paying at a lower rate than any time during your working career.  And that choice can be of the six-digit variety.  Yikes!!!

Of course, you there are special circumstances where maybe a Roth IRA works better.  Maybe you’re a kid with really low income (less than $10,000 like from a summer job), but those are probably more the exception.

Let me know what you think in the comments section.

The Trump stock bubble

The normally very calm and thoughtful T. Lee (a good friend from my Medtronic days) expressed some strong anti-Trump feelings in a comment a couple days ago.  That puts him in good company with a large portion of the country.  But then he asked the following question:

“At what point, if there is one, should we consider pulling our money out of stocks and investments and holding cash, based on the disorder, confusion, and unbelievable uncertainty this tiny man of a president is causing domestically and abroad? Are there any telltale signals? I also ask because the housing market and stock market are at historic highs, and seem due for a pullback. I know it’s impossible to time the market this way, but just wondering perhaps there is an exception under extraordinary times.”

Let’s dig into this and see what we come up with.


Things aren’t that bad

Times are insanely partisan right now.  If you don’t like Trump it’s easy to think we are on the brink of oblivion, but things aren’t really that bad.  Let’s look at some times when things were REALLY bad and how stocks did (some of this is from a post I did a couple years ago so you can check that out here).

Let’s think of the worse times in the past 100 years.  A short list probably includes the start of WWII, the atomic bomb dropped, and the assassination of MLK.  In each of those things look bad, really bad, and maybe we would have thought that things were about to fall apart:

When Hitler invaded Poland and started World War II (Sep 1939)

When the US dropped two atomic bombs on Japan and started the nuclear era (August 1945)

When Martin Luther King was assassinated setting of some of the worst race relations since the Civil War (April 1968)

The civil unrest that’s going on in the US right now is a drop in the bucket compared those examples.  Even so, when things looked darkest, being an investor turned out to be a good thing.  That table looks at if you invested $1,000 per month starting at that bad event in the Dow Jones index, and how you would have ended up over different time periods.   Over a 20- or 30-year time horizon we know that we almost always come out ahead.  That definitely held true even in these examples.

I don’t think we have anything to worry about as investors because of Trump or all the current drama.  It’s important to keep things in perspective.


Pullbacks do happen

Definitely there will be a point when stocks will pull back.  That’s just the nature of the stock market.  Given that Trump has taken so much credit for the rise in the stock market, it will be interesting to see how he tries to avoid blame when it has a bad few months or a bad year.  Of course, he has shown his ability to grab credit and shed blame as well as any politician, so I’m sure he’ll come up with something.

In my post where I proved I was smarter than a Nobel Prize winner, I based that on the fact that two years ago Robert Schiller predicted stocks would not do well.  I disagreed and was much more optimistic.  Since then stock have been on a major tear, so there you go.

But it can’t last forever.  Here are the stock returns for each of the last nine years since the Great Recession: 28%, 17%, 8%, 9%, 29%, 9%, 0%, 13%, and 12% so far this year.  That’s a dream, and eventually we’ll take a pause from that incredible pace, but of course we don’t know when that will happen.  Robert Schiller, one of the very smartest people in the world, predicted it a couple years ago.  Maybe it will be this year (I did suggest maybe we’re seeing some early signs), or maybe it will be two years from now.  If it’s two years from now, there could very well be another 10% or 20% upside that you don’t want to miss.  As always I recommend holding tight and doing the long-and-steady investment strategy.



Despite the craziness going on in the White House right now, things actually seem fairly strong in the economy which makes me think a huge bubble burst unlikely.  If you look back over the past major financial bubbles in the US three come to mind—the Great Depression (1929), the Dot com bust (2001), and the Great Recession (2008)—the issues that caused those don’t seem to be in place.

Of course, it’s impossible to predict what will cause a bubble but if we look at those in turn I think we’ll see that things look okay.

Great Depression—That was the big one that was caused by a perfect storm of bad stuff.  You had an insane asset bubble that captivated the nation and was held up by fraudulent companies.  It was so bad that most of the SEC laws came about afterwards.  What is going on now isn’t anywhere close to that.

Dot com bust—Again we had an asset bubble where stocks that had no profits, and no prospect of getting profits any time soon were being valued through the roof.  Maybe there’s a bit of that now, but it seems fairly tame compared to back then.  Now companies like Amazon and Apple dominate the news, but those are very profitable companies.

Great Recession—This actually had little to do with the stock markets but more to do with the big bets banks were making backed up by small amounts of equity.  Things went bad for a bit, but then rebounded quickly.

That’s a quick rundown, and there’s a lot of detail we could go into for each of those, but none of those telltale signs seems to be with us now.  Banks are stronger than they were, there doesn’t seem to be widespread fraud, and the stocks driving the market are profitable.  But bubbles by their nature are hard to predict, so who knows.

That said, I will give you the steady advice that I always do which is to sit tight, do dollar cost averaging, and in the end you will very likely come out ahead.

Week in review (25-Aug-2017)

Yawn.  What a boring week for the markets.  There weren’t any meaningful headlines or blockbuster deals that dominated the financial media.  Stocks just trudged along.  At the end of the week we were up 1%, Europe was up a bit more and Pacific a bit less, but still up 1%!!!  That’s really the perfect scenario, no?.  Nothing too crazy happened, the companies just created value in anonymity, and investors were rewarded.

Of course, there were some stories.  Here are the interesting ones that I think drove the market:


Home sales are softening

Data came out that home sales were slowing, particularly new home starts.  This is a bit of a big deal in that homebuilding and construction are a fairly large part of our economy.  If that slows that means fewer construction workers have jobs, less building material is being used, etc.  That will impact earnings of companies.

Second, and maybe more important, is that new home builds tend to reflect overall confidence in the economy.  Ultimately, these houses will be bought by someone almost certainly borrowing money with a mortgage.  Those people need to be confident enough in their financial prospects to take that on.  If that confidence is eroding which ultimately makes it to fewer houses being built that might portend the end of our pretty spectacular bull run.  That’s not to say that will happen, but it might be an early hint.

Somewhat related, durable goods orders fell more than expected.  Again it’s a similar calculus.  Durable goods represent a long-term investment so if people are less confident that might be the cause.  Stay tuned on this one.


US limits trade of Venezuelan bonds

What is going on in Venezuela is a tragedy.  You may recall I did a post with a former classmate of mine looking at how investments are done in that country.  At the time it seemed very pessimistic, but compared to now those probably seemed like the good ole days.

It’s so sad.  The real tragedy is the humanitarian toll the Venezuelan government is imposing on its people.  Kids are starving, people are going without medicine, simple products can’t be bought, and the currency is becoming tissue paper.  So sad.

The US government imposing these new restrictions is obviously an attempt to break the current Venezuelan government and get something better, ideally capitalist, in there.  It’s a long road but if that could happen a tremendous amount of investment would flood into the 32 million person country with the largest oil reserves in the world.  Companies could make a lot of money capitalizing on those opportunities.  Oh, and by the way, it would help all those millions get good jobs, fill their bellies, educate their kids, and get back to normal.


Amazon cuts Whole Foods prices

No week is complete without a story about Amazon changing the world.  On Monday the merger with Whole Foods will be completed.  Amazon made waves by saying they would drastically cut prices at the grocer.  This definitely follows Amazon’s playbook by bring logistic excellence to their operations and passing the savings on to the consumers.

Some have complained this might start a price war with grocers.  I say “bring it on.”  Who loses there?  Maybe grocery stores that haven’t invested in improving their operations so they can’t compete.  Sorry about your luck, but you need to keep up.  Who wins?  We do.  We get better service at lower prices.  Amazon can definitely create tremendous value which makes them money and saves us money, which we can spend or invest in other things.  All that’s good for the stock market.


Debt ceiling war

It’s a long time before it would happen, and it’s far from certain that it would, but a debt ceiling showdown looks like it might be coming.  These things are always high drama, and then always have a way of resolving themselves either right before the government would actually shutdown or shortly after it did.

A government shutdown has huge economic implications.  Federal government spending is something like 20% of GDP so it’s a big deal.  Last time this happened, during the Obama administration, stocks fell about 4% when the government shutdown.  After it was quickly back up, stocks regained all that back.


Hope you all have a great weekend.

Democrats are the best party for the stock market except . . .

. . . when Republicans are


“Politics suck” –everyone on Facebook

Given the incredibly bitter political partisanship affecting the country right now, it only seemed right to throw fuel on the fire by asking an incredibly incendiary question like: which political party is better for the stock market?

The stock market is a tricky mistress to the political parties.  Republicans seem to openly court this mistress with their pro-business and more capitalist policies.  When the stock market does well that is seen as a success.  Ronald Reagan’s trickle-down economics would have the stock market winners, who tend to be clustered among the wealthy, spend more and benefit everyone.

Most recently, Donald Trump has hailed the tremendous bull market during his presidency as a sign that his policies are working.  In case you’re curious, the S&P 500 is up over 15% since he was elected.   That’s pretty good, but certainly not the best.  Since 1950, of the 10 presidents who became president after being elected (I’m not counting Johnson or Ford), Trump ranks 3rd highest, behind John Kennedy (23%) and George HW Bush (25%) over similar time periods.

It’s a bit more complicated with Democrats with their more progressive agendas and socialist policies.  But make no mistake, Democrats want stocks to do well too.  Good stock markets are correlated with low unemployment.  When the stock market does well tax receipts are up.  One of the core bastions of Democrat ideology, the pension fund for public employees is nearly totally dependent on a strong stock market.

Whatever, that’s all politics.  You can agree or disagree with my thinking, but I don’t think there’s any doubt that both parties want the stock market to do well.


Republicans or Democrats?

So that leads to the big question: which political party does better with the stock market?

Here’s a table with a lot of data.  It shows the average return as well as the number of years since November 1950* for each scenario:








(7 years)


(22 years)


(8 years)


(37 years)



(8 years)


(18 years)


(4 years)


(30 years)



(15 years)


(40 years)


(12 years)


(67 years)


There have been 37 years of Republican presidents and 30 years of Democrat presidents.  The average return for Republican presidents is 5%, for Democrats 12%.  Clearly DEMOCRATS are better, but wait . . .

Republicans have controlled both chambers of Congress 15 years, Democrats 40 years, and it has been split 12 years.  The average return for Republican Congresses is 14%, Democrat Congresses 6%, and split Congresses 8%.  Clearly REPUBLICANS are better, but wait . . .

Republican presidents have had a Republican Congress for 7 years where the average return was 12%.  Democrat presidents have had a Democrat congress for 18 years with an average return of 10%.  Clearly REPUBLICANS are better, barely, but wait . . .

Republican presidents have served with Democratic Congresses for 22 years with an average return of 3%.  Democrat presidents have served with Republican Congresses 8 years with an average return of 16%.  Clearly . . . wait there’s nothing clear about this one.  Who should get the blame for those below average Republican president/Democrat Congress years?  Who should get the credit for those really, really good Democrat president/Republican Congress years (that was mostly during Clinton’s administration)?

There’s a lot of ambiguity here, and I don’t think there’s a clear answer.  We could argue about it on Facebook, but that’s about as fun as a root canal.  No thanks.


There must be something in the water

Since 1950 the US stock market has done really well, amazingly well.  In November 1950, the S&P 500 was at 19.51; today it’s at 2480.91.  Let that sink in for a minute.

All that data I showed you was valuable to see in that it confirmed we are on a bit of a fool’s errand.  Asking if Republicans or Democrats make the stock market do better is the wrong question.  The important observation is that the stock market does well no matter who is running things.  If you’re an optimist that means either party is filled with good stewards who keep things going in a positive direction.  If you’re a pessimist that means the the American economy is so strong and robust that the idiots in Washington, on either side of the aisle, can’t screw things up.  Either way, that is a tremendously powerful and important and comforting insight.

The day after Trump was elected, the stock market had a really good day, rising 1.1% (Reagan’s day-after-election rise was 1.8%).  That was based on expectations of tax reform, reduced regulation, and healthcare reform, to name a few.  So far, pretty much none of that has come to pass, yet stocks are up 15%.

How different would that have been if Hillary Clinton was elected?  Maybe she doesn’t sign some of those executive orders on the Keystone pipeline.  Maybe she doesn’t rollback some of the regulations Trump has, maybe she adds some he hasn’t.  All maybes.  But those are all drops in the bucket compared to the gargantuan size of the US economy and the stock market which reflects it.

My absolute belief is that a strong US stock market reflects a strong US economy and business environment.  Awesomely, that goes beyond the power of one person in an oval office or 535 people down the road a bit.  We will win no matter who is there, and that makes things a lot easier.

So my answer is: Republicans are better for stocks but Democrats are better for markets.  Wait, maybe Democrats are better for stocks and Republicans are better for markets.  I forget now.  Damnit.


*All analysis in this post is based on the S&P 500 since the midterm election in November 1950.

Plumber Fox or Electrician Fox

For the past two posts, you’ve heard me rail about college, fundamentally questioning whether the astronomical tuition costs are worth it (here and here).  The real test is what I do with ‘Lil and Mini Fox.  Here are my thoughts:


Saving in a 529

Currently we are saving $1,000 per month in a 529.  That will build to about $400,000 which will allow both cubs to attend a public college (like UNC-Chapel Hill) with a fair amount left over, both to attend a private college (like Duke) but we’ll need to come up with more money, or one to go to a public college and the other a private college and we’ll pretty much spend it all.

If you are planning on your child getting any education beyond high school, 529s are a no-brainer.  They act like a Roth IRA in that they invest after tax money, but then all the investment returns are tax free.  That can really add up to some significant tax savings.


The best or . . . something really good

Foxy Lady and I have been blessed to have good jobs that have allowed us to build a comfortable nestegg.  One of the things we want to do with that is afford our cubs the opportunities to help them succeed.

If either ‘Lil Fox or Mini Fox turns out to be super smart and super hard working and super ambitious and is able to leverage those to get into one of the very best colleges in the country, we want to make the financial considerations a non-issue.

However, “best colleges” is a tricky term.  If either got into Harvard or Stanford, they would go and Foxy Lady and I would come up with the money, no questions asked.  You can include U of Chicago (where Foxy and I got our MBAs), MIT, Duke, Penn, Princeton, and CalTech as similarly expensive schools that we would swallow hard but also pay to gladly send our cubs to.

Beyond that, it’s hard to think of private colleges that would justify the 3x money that a public school would cost.  That’s not to say there aren’t great private colleges that didn’t make my list of eight, but are they worth the extra cost?  I don’t think so.


Local public college, but only if . . .

We’re lucky that in North Carolina we have some really great public universities.  UNC-Chapel Hill is regularly rated as one of the very best.  As a North Carolina tax payer we get access to that fine institution at a substantial discount.  Also, NC State is very strong, especially in STEM.  ‘Lil and Mini could get world class educations there.

Yet, Dad’s going to put some strings on that.  If that’s the path they take they have to major in STEM, business, pre-law, pre-med, or some other area that can reliably offer jobs that justify the educational expense.  I was a finance major and that has paid off.  Foxy Lady was a marketing major and that paid off.

UNC is a great school and I have no reason to believe their drama and literature and sports science and art history and music and Asian studies and creative writing departments are great, being taught by dedicated professionals.  But none of those majors offer good-paying jobs to the average graduate.  The main point of my last post was looking at the significant expenses of college and making sure the job you get with that degree offsets those costs.  For all those majors and many, many more, it’s not even close.  I’m not about to spend a hundred grand so my cub can get a journalism degree then become a host at Applebees.


Trade college for a trade

This is the one I really get excited about.  If our cubs aren’t Harvard material and aren’t interested in STEM, pursuing the trades is something Foxy and I are really going to push.  Follow my logic:

Being a plumber or electrician has some great things going for it.  First they make really good money.  A plumber makes on average about $51,000.  Remember that an average college graduate makes about $60,000, so they’re pretty close.  Add in to that our discussion last post about “smart non-college kids” and if our cubs are smart enough and hard enough workers to average $60,000 as college graduates if they got that degree, they’ll definitely be able to make more than $51,000—probably fairly close to $60,000.  That makes the salary a wash.

Also, the cubs can hit the ground running right out of high school.  It takes about a couple years to get your license and a few years after that to become a master plumber.  But you’re still being paid during that time, not paying tuition during that time.  Big difference.  Plus, by the time they would have finished college and entered the workforce making about $33,000 they could be a master plumber earning substantially more than that.

When you choose your education, you want to get something that will be in demand.  It’s hard to say what the future will hold, but people will definitely continue to poop.  Joking aside (although I do believe they will), there are a lot of reasons to believe that plumbers and electricians will continue to be in demand.  First, those vocations currently skew older because that’s when the trades were taught more widely.  There are a lot of 50- and 60-year old plumbers and electricians.  It’s not a sexy job that kids today want to pursue, so those who actually do will make a killing.

Second, the world is changing in ways that will probably need that skillset.  Plumbing and electrical wires are constantly breaking down so that will always provide steady business.  Plus, changes are coming that play right into their hands.  Two years ago we installed solar panels on our roof, and you know who did a lot of that work?  California just went through a major drought which caused everyone to roll back their water usage; you know who installed those water-efficient showerheads and toilets?


An ace in the hole

You can tell I have an interest here.  So it’s probably not surprising that whenever a plumber or electrician comes to our house (and charges about $200 for 20 minutes of work—not bad) I ask a lot of questions.

One thing that often comes up is what success looks like for them.  Like everyone in any job, there are always those things that remain just out of their reach, but “man, if I could get that I’d have it made.”  For a lot of tradespeople, it’s being able to go out on their own.

There was one electrician I talked to a lot when we installed our solar panels.  He was about 35 and had been working for this company for about 8 years.  He said he made about $50,000 a year and he was happy with that but he knew he could do better.  He’d love to start his own business.  When I asked him what was stopping him, he rubbed his fingers together.  MONEY.

He just didn’t have the money saved up to go out on his own.  I asked more details and he said it came down to having a truck and all the necessary tools (there are a lot).  Once he had that, he could do his own thing, be his own boss, and keep everything he made instead of a portion going to his boss.

How much were we talking to get him set up like that?  Between $80,000 and $100,000.  That’s a lot of money, no question.  For this guy, as well as most Americans whether or not they have a college degree, that’s an unattainable sum.  That causes him to continue to work for someone else and not realize his full potential.

Do you know who does have $100,000?  A kid like ‘Lil or Mini, whose parents have saved more than that for their college education.  If ‘Lil Fox foregoes $100,000 (or $280,000 at a private college) of college costs, that money will be there and could be used for setting him up as an independent plumber.  That puts him at a huge advantage, and isn’t that what Foxy Lady and I want to do with the education money we have saved for our cubs?

You could easily imagine our conversation with him: “We have saved $200,000 for your college, and we know you would be successful there if you wanted to be.  Instead, become a plumber.  In two years you’ll be licensed and three years after that you’ll be a master plumber.  When that happens, as a ‘graduation gift’ we will get you the best work truck with the best tools, plus we’ll cover your business’s expenses for the first six months.”


Who knows how all this will pan out.  These are my ideas right now.  We have 13 years until ‘Lil Fox needs to make this decision, and a lot can change in that time.  Also, there’s the little thing of what he want to do.  But as of now, unless he gets accepted to Harvard or wants to become an engineer, I am really liking the plumber idea.

However, this post particularly the two before it really shed light on this enormously important decision and how all of us as loving parents can think about it a bit differently than we have been brainwashed to.

Week in review (18-Aug-2017)

It was a bit of a roller coaster for stocks this week.  After stocks were down big last week, stocks shot up over 1% on Monday but gave all those gains back and more on Thursday.  The week ended with US stocks down 1% for the week, Pacific stocks up 1% for the week and European and Emerging stocks in between.


Merck CEO quits President’s advisory team

Similar to last week, the biggest business news story was a very important social story that cast a shadow over everything: The despicable neo-Nazi terrorist attack that left one woman dead horrified the country.

However, the real story became President Trump’s response.  His delay in overtly condemning white supremacists lead to public outcry.  Merck’s CEO, Kenneth Frazier, was the first of several leaders who cut ties with the president by leaving his American Manufacturing Council.  As the story continued to spiral, Trump eventually disbanded the council.

Given the racial overtones here, Frazier’s departure is particularly notable in that he is one of only five black CEOs of Fortune 500 companies.


Chinese company tries to buy Chrysler

Rumors circulated on Monday there was a Chinese suitor looking to buy Fiat Chrysler.  This is interesting just because Chrysler has been bought and sold a few times, first to Mercedes and then to Fiat.  I’m not sure any of those transactions worked out well for the buyer.  Now it might be a Chinese company.

Second, and more broadly to the market, I think merger and acquisition activities are generally positive.  If a purchase is made, it will certainly be at a premium over Fiat Chrysler’s current market value.  That’s good for Fiat Chrysler’s shareholders in particular, but it’s good more broadly in that it shows that there are companies out there who look at assets and think they can do it better, and they’re willing to put their money where their mouth is.  It will be interesting to see how this unfolds.


Amazon creates pickup locations

Amazon continues to change the world.  They announced this week that they are piloting locations where you can order something online and then go pick it up minutes later.  It’s easy to see how this can be tremendously convenient.  It’s also not a big leap, if this is successful, to see this concept expanding to the point where we eventually get on-demand, nearly instantly-delivered products.

I kind of feel like twenty years from now this is how the world we’ll go, and we’ll be telling our kids how things were before 2017.  They’ll look at us like we were crazy to have to wait a couple days to get stuff online.  From a stock perspective there are going to be huge winners that are going to enjoy tremendous value creation as they make our lives easier.  Who knows if Amazon is going to be one of those winner, but it’s certainly hard to imagine them not being there based on their current winning streak.


China’s Alibaba shows tremendous growth

Amazon may be taking over the world, but there are other companies that are playing in the game too.  Alibaba, which is basically China’s version of Amazon, has been growing tremendously.  On Thursday they announced they grew over 50% to have quarterly revenue of about $7 billion.  That’s a far cry from Amazon’s $38 billion a quarter, but who knows?

The world of retail is changing in unimaginable ways.  The world of international commerce is also changing and the opportunities presented in China are unimaginably promising.  Like the note above on Amazon, I think Abibaba is also good news for the stock market.  Obviously shareholders of Alibaba are doing well, but this is a real rising tide raises all ships.  As Alibaba does well they are serving new and richer consumers who really haven’t been served before.  That’s a lot of upside, and that translates to good news for the companies that are involved in that and by extension their shareholders.


Foot Locker plummets

Since we’ve spent so much time talking about retail and how it’s changing, it seems appropriate that the week ended with an old-model retailer, Foot Locker, missing earnings big and their stock plummeting.  It’s pretty amazing to see such a colossal transition happen so quickly.

Foot Lockers were staples in the mall, where a teenage Stocky and his friends would marvel at the new Jordans, wishing our parents would give us a $150 to spend on a pair of shoes.  Foot Locker’s employee uniforms (black and white striped referee shirts) entered the sports lexicon when fans would complain that refs who made a bad call should “go back to Foot Locker.”

And now it looks like it’s ending.  Another brick and mortar retailer is being replaced by a better, faster, cheaper online buying experience.  As consumers, we’re benefiting and as shareholders we are (so long as you don’t own Foot Locker).  While the tide is rising, there are individual winners and losers, and it’s a bit nostalgic to see one of those titans from yesterday in the process of crumbling.

Making college pay off


On Monday we asked the insane question: “Is college a waste of money?”  We came up with an insane answer: “A person would do much better financially saving that tuition money and not going to college.”

Such a bold conclusion deserves some intense scrutiny.  Let’s look at this more closely and see what the key drivers are.


Base case

Recall from the last post that Smarty goes to private school ($280,000 total).  Fasty works at a job making $36,000 per year straight out of high school and Smarty spends four years in college then makes $60,000 per year once she’s out of school.

Results—FASTY comes out ahead by $2.7 million (11% better than her sister).  This is where we were yesterday.  Now let’s start looking at our assumptions.



Of course, this is a big one.  Scholarships effectively bring down the cost of college, potentially to zero if you get a full-ride scholarship.  The larger scholarship Smarty gets, the more the race tilts in her favor.


Public college

Public college is a much more affordable option, at $100,000 instead of $280,000.  Except at the very top (Harvard, Stanford, Chicago) there’s no reason to believe that Smarty couldn’t get as good an education at a public school like University of North Carolina-Chapel Hill compared to an average private school like Wake Forest.

Results—This has a huge impact.  SMARTY comes out ahead by $680,000 (4%) if she goes to a public school.  It’s not an overwhelming advantage, but the decision between public and private school makes a huge difference.


Wage growth

We assumed that Fasty would make $36,000 her whole career and Smarty would make $60,000 her whole career.  Those are the average incomes for people, but in real life people’s wages start lower and grow higher.  There’s a lot of debate and controversy here about wage growth and if it goes to everyone or just those at the very top (here is a link that a grad school friend posted).

If you look at more detailed data, it shows that those with college degrees have wage growth 33% higher than those without degrees.  To account for this, let’s assume Fasty starts out at $22,000 and Smarty starts out at $33,000.  Then let’s assume that Fasty’s wages grow 2.0% each year while Smarty’s grow at 2.7%.

Results—This actually has a pretty low impact.  FASTY comes out ahead.  If you assume public college Fasty is $233k (2%) ahead which is pretty much a tie.  If you assume private college then Fasty is ahead $4.8 million (39%).


College major

Let’s cut to the chase.  This is where the real action happens.  What you study at college has the biggest impact on what you earn.  Starting salaries for STEM (science, technology, engineering, math) majors are 30-50% higher than those for liberal arts and teaching majors.

Also, the income growth is much higher.  STEM majors can expect their wages to grow about 50% faster than teaching and liberal arts majors.  In fact, teaching majors have wages that grow SLOWER than those people without a college degree.  So if Smarty went into teaching, she would make more than Fasty at first, but Fasty’s income would pass Smarty’s eventually.

Results—This actually has a profound impact, even when you assume public college.  With a STEM degree, SMARTY will come out $3.0 million (19%) ahead.  You can play with the numbers, but it’s really hard to find a realistic set of assumptions where Smarty doesn’t win with a STEM degree, with the possible exception of private college.  This is true for medical and business degrees as well, just not to the same degree (degree-degree, did you see what I just did there ??).

As good as things look for a STEM degree they look that dismal for a liberal arts, career-focused (journalism, public policy, recreation, industrial arts, agriculture, etc.), social sciences, or teaching degree.  FASTY will easily come out ahead to the tune of $3.2 million (33%) if Smarty gets a liberal arts or teaching degree.  This assume public college; if we assumed private college, that would be drastically worse for Smarty.


Master’s degree

By attending college Smarty will give herself an option that Fasty just won’t have: the ability to get a master’s degree.  This is the route I took, going to college and then after working a few years getting my MBA. In a way, this is really more of the same, and links very closely to the “College major” discussion.

Getting a graduate degree doubles down on your college decision.  If you pick a major which puts you ahead, typically getting a master’s degree in that same area will puts you further ahead.  Conversely, if you pick a major that puts you behind, getting a master’s degree will put you even further behind.

Results—If Smarty gets a STEM degree she’ll come out ahead.  If she gets her master’s, instead of being about $3.0 million ahead she’d be about $3.6 million ahead.  That’s a bit of upside but not too much.  Conversely, if she gets a liberal arts degree and then a master’s on top of that she’d go from being $3.2 million behind to $6.0 million behind.  Yikes!!!



Taxes always suck, but they are going to hurt Smarty a lot more then they’ll hurt Fasty.  Smarty got her degree and got a higher paying job, and that means she’ll be paying a much higher tax rate than Fasty.  Fasty makes less money and that helps in two ways.  First, she pays a lower tax rate.  Second, because her income is low she doesn’t pay taxes on her investment income.

As Smarty makes more money which is really her whole strategy by going to college, that will help her win the race against her twin, but that will also mean she’ll pay higher taxes and that has a moderating effect.

Results—The very best outcome for Smarty was a STEM degree from a public college, and then her master’s.  That resulted in her coming out ahead by about $3.6 million.  If you add taxes to that, she only comes out ahead about $1 million.  That’s still a lot, but taxes are making something that was a total sure thing a bit more suspect.

Of course, if you consider taxes on all the less favorable scenarios for Smarty (private college, liberal arts degree, etc.) it takes a bad situation and makes it even worse.


Smart non-college kids

We’ve been making an assumption that I think is actually flawed, and has the potential to tip the scales in Fasty’s favor pretty drastically.  Remember, we assumed that Fasty and Smarty are identical in every way—equally smart and equally hard working.

In our society, smart and hard-working high school graduates typically go to college.  That’s just what they do because they’ve been told a million times that is what they should do.  It’s a bit of a circular argument.

When we look at the data for high-school graduates with no college, those are people who never went on to college.  Maybe they were late bloomers, maybe not ambitious, maybe just plain not smart.  Based on my argument above, very few (although some for sure) had the option to go to college and passed it by.

I say all this because what would happen if Fasty is smart enough and hard working enough to go to college but chooses not to?  There’s every reason to believe that she would do much better in her career and make much more money that the “average” high school degree person we’ve been talking about.

Imagine she gets an entry-level job at a factory.  She is punctual, hard-working, figures out better ways to do things; all those things would have helped her in college but now she is applying that to her non-college job.  That will set her apart from many of the other high-school graduates who didn’t have those qualities and abilities, probably one of the main reasons why they didn’t go to college.  Eventually her talents will be recognized and she’ll get more opportunities at higher wages.  Maybe it won’t be as fast as if she earned her degree, but it doesn’t have to be.  Remember, she also has $280,000 in her bank account.

Results—If Fasty’s salary is higher or can grow faster than the average for a high-school grad, then the calculations drastically shift towards Fasty.  Remember that Fasty won the race most of the time.  It was when Smarty got a STEM degree that things changed, and that’s because Smarty had a higher salary and faster income growth.  However, if Fasty’s hard work got her even a little bit higher salary and faster salary growth, she would close the gap.


Other considerations

College dropouts—This is the real killer.  How many kids start college but don’t finish.  They end up with the job prospects of Fasty but without the head start.

Fifth-year seniors—Increasingly college kids aren’t finishing their degree in four years.  That is a double whammy because it delays them making money for another year and they have to pay an extra year of tuition.

Living at home—There are a lot of ways to get the benefits of college without the full-blown college experience.  Living at home (and eating Mom’s cooking) is one that drastically cuts down the cost of attendance.


We’ve come along way.  After Monday’s post I was pretty pessimistic on college.  I don’t know if this post made that better or worse.

Definitely we learned that private college makes it near impossible to come out ahead financially.  More importantly, what you study makes or breaks the decision; STEM and healthcare and business will probably put you ahead while liberal arts and teaching and social sciences will doom you.  There’s other stuff too, but I think those are the two most important.

Come back on Monday when I tell you what Foxy Lady and I are planning on doing with ‘Lil Fox and Mini Fox.

College is a waste of money

Holy crap!?!?!?  Did I just say college is a waste of money?

The very idea seems anathema to everything our society has drilled into us.  Education is the best investment you can make.  College allows the poor but smart to have access to lucrative job markets, allowing for incredible social mobility.  Broad access to college is often credited for many of the amazing advances in our society over the past century.

However, this is also one of the most stressful areas of personal finance.  Whenever I work with a someone on their finances I always ask what their goals are.  Nearly universally, it is to pay for their kids’ college educations and to retire comfortably.  Paying for college is a primary goal and a huge expense which causes an incredible amount of stress.

A good rule of thumb I tell people is that you’ll need to save about $500 per month to pay for a child’s college education starting when the child’s a baby.  That’s for a state school, so if you want to pay for private school the number is closer to $1,500 per month, PER CHILD.  A family with a couple children could easily need to save a few thousand dollars a month.  That, ladies and gentlemen, is real money.  Given the huge investment we’re talking about, it seems worthwhile to ask the question: Is college worth all that money?

On a personal level, I got my bachelor’s degree in finance from the University of Pittsburgh and my master’s degree in business from the University of Chicago.  That education played an essential role in allowing me to make a very comfortable income to the point that I was able to retire in my mid-30s.

For our own cubs, Foxy Lady and I save $1,000 each month in their 529s which will one day go to pay for their college educations.  When the time comes we think we’ll have about $400,000ish total combined for both of them.  That will allow us to pay for each of them to go to a state school (think University of North Carolina-Chapel Hill) with some left over, or for each of them to go to a private school (think Harvard) but they’ll need to take some loans.  Based on that, you can decide if I am eating my own cooking here.

So what gives?  Why would I even ask such a seemingly self-evident question?


College is expensive

College is expensive, but that doesn’t mean it’s not worth it.  There are a lot of things that are expensive but are totally worth it.

The key question for college is does the increased income available because you can get a better job thanks to your degree offset the cost of attendance.  In that way, it becomes a pretty simple calculation.

Fortunately, because this is such an important issue in society, there’s actually a lot of data out there to help us with this calculation.  Unfortunately, because this is such a politically and socially charged issue, a lot of people misanalyze this data to achieve their own agendas.  The goal of this post is to get to the bottom of it all in as objective a way as possible.

This table shows how much college costs.

Total cost of attendance per year

Typical public college (UNC, UCLA, Michigan, etc.)


Typical private college (Wake Forest, Harvard, Stanford, etc.)



This table shows the average income for people with different levels of education.  There are some real problems with this table that we’ll discuss probably in the next post, but let’s start with this.

Education level

Average income

High school dropout


High school degree


College degree


Graduate degree


Professional degree (doctor, lawyer, etc.)



The race of the fast versus the smart

We’re going to use my cousins Smarty Fox and Fasty Fox on this one.  They are twins, identical in every way—they are equally smart, equally hard working, equally ambitious, equally anything that would impact their career prospects.  The only difference is that Smarty decides to go to college while Fasty decides to start working right after high school.

Also, Smarty’s and Fasty’s parents saved enough for both cubs to go to a private college ($280,000 for each cub).  They’ll use that to pay for Smarty’s education.  For Fasty, they will put the $280,000 into a trust that will invest that money in the stock market and be available in her later adulthood (the comparison we’ll do doesn’t really require that Fasty and Smarty have that money upfront in a college fund, just that Smarty pays it and Fasty doesn’t). Let’s compare who ends up with more at the end of their careers.

As you would expect, Fasty starts with a huge lead.  First, she invests the $280,000 her parents had saved for her college.  We know, especially over a long time horizon, she’s virtually guaranteed to make money in the stock market.  Second, that $280,000 is growing each year; if we use an average return of 7%, in her first year she gets about $19,600 which her studious twin doesn’t get.  Third, Fasty starts working right out of high school; in her first year she makes $36,000 while her twin doesn’t make anything.

For the first four years of her career Fasty builds her lead with the salary from her job and the returns from her $280,000.  After four years, Fasty has about $525,000 while Smarty is starting at $0.  However, Smarty has a degree and can get a job at a much higher salary than her twin.  Smarty’s first job pays $60,000 which obviously is much more than the $36,000 Fasty is making.

Fasty has that head start but Smarty has the higher income.  Which will prevail?

As it turns out, it’s not even close.  Fasty’s lead is just too big for Smarty to catch up.  Smarty will be making about $24,000 more each year than Fasty, which seems like a lot.  However, Fasty’s $525,000 lead allows her to earn an investment return of about $37,000.  That more than offsets Smarty’s higher salary.   By the time Fasty and Smarty have reached 65, Fasty will be MILLIONS ahead of Smarty.

So there you have it.  Don’t go to college.  Just invest the money and you’ll come out ahead.  But . . .


Is college education really a rip-off?

This is a tough one.  I’ll go back to how I started this post.  College is such an integrated part of our lives and society.  Colleges also have historically been universally revered—these are good places, doing good work, making the world a better place.  But maybe those are the very places where we should question that absolute goodness.

From a purely financial point of view, college may not be worth it.  Hold on though; I’ll beat you to the punch and say all the things this quick analysis didn’t factor: college major, drop-out rate, intelligence of person, future educational options, income growth, and taxes just to name a few.  Tune in on Wednesday when we’ll go over that.

The other big thing this post missed is all the non-financial elements of college.  College might be a time to spread your wings and discover yourself.  There are so many opportunities to pursue so many interests, many of which you may never have known you had.  You’ll make lifelong friends and maybe even your life partner (as was the case for me and Foxy Lady in grad school).  Of course, I’m not sure that college, and it’s really high costs, is the only place you can get those experiences.

Also, life isn’t always about money.  This is a personal finance blog so that’s what we tend to look at, but that doesn’t mean every decision needs to be based on money.  That said, this becomes a bit philosophical.  What is the purpose of college?  My view is those non-financial things are nice-to-haves compared to college’s ultimate purpose of preparing young people for gainful employment so they can become self-sufficient and contributing members of society.

Complex stuff.  Tune in on Wednesday for part 2.

Week in review (11-Aug-2017)

Every day there are hours of airtime on CNBC and Fox Business filled with commentary on what is going on with the stock market.  Why did it just go up, or Why is it poised to go down?  Add to that the thousands of articles and post positing the same thing, and it’s a lot.

It makes you wonder if there are really that many intelligent things to say, or are they just filling time.

Every Friday I am going to do a quick post looking at the week for stocks and trying to distill what the really important stories were that drove the market.

For this week stocks were pretty much completely flat through Wednesday.  Then North Korea and some earnings misses hit on Thursday and Friday, knocking the US markets down about 1.5% and international markets down about 2.5%.  Here is my take on what caused it all.


Google’s diversity memo

You know it’s a slow week for business news when the top story is a memo regarding gender diversity from a Google employee.  It’s not that the story isn’t important—it is.  However, it seems like more of a social issue than a financial markets issue.

This wasn’t a story about how Google is growing it’s sales or earnings or how it is going to expand into new, profitable markets.  Those are the things that typically drive stocks.  This seems more like the type of story that leads the “News” section on mainstream news outlets like The New York Times and CBS Evening News.  It did that for sure, but it also got top billing on Yahoo! Finance and The Wall Street Journal and CNBC.

Early in the week when the story was hottest, the market didn’t move a lot.  It was a story on a very important issue (gender equality) in one of the most dynamic industries (tech) at one of Wall Street’s darlings.  That made it an important news story, but it didn’t really reflect anything driving the financial markets.


North Korea showdown

This was the dominant story for the week.  Tensions have been high with North Korea for a while as it pursues a nuclear ICBM.  Wednesday after the markets closed President Trump and North Korea’s Kim Jong-un started a war of words that put the world a bit more on edge.

Trump said North Korea would face the US’s “fire and fury.”  Kim said they were targeting their missles at Guam.  Trump said the US was “locked and loaded”.  That’s where we end now.

Stocks fell sharply on Thursday as the market digested this.  I don’t think most believe a nuclear war is likely (if it was, stocks would have fallen much, much more).  But this does open the door to some ugly possibilities, namely would a war between the US and North Korea ultimately lead to a war between the US and China.  Remember, in World War I millions of Germans and French killed each other after a Serbian rebel killed an Austrian prince.


Snap misses

Snap is one of the new social media companies that has become a Wall Street darling.  They don’t make money but there are (were) worth over $15 billion.  I have never used Snapchat and can’t say I fully understand how it works.  But I know my neighbor’s 13-year-old uses it and says that what all his friends are doing.  Those crazy kids.

Thursday night they released earnings and subscriber numbers that badly missed expectations and their stock cratered about 13% early Friday.  This is actually good news because it shows the market isn’t getting caught in “new economy” euphoria, but evaluating these companies on fundamentals like sales, earnings, and growth prospects.  It reminds me a bit of the internet bubble, but it seems we’re being a bit more rational this time around.

Obviously this stock weighed the markets down a very small bit.  But the silver lining is that it shows that all these new companies aren’t going to make it, but that some will be strong and emerge as titans (Facebook).


Brick and mortal retails slows less

Traditional brick and mortal retailers like Macy’s and Kohl’s reported earnings, showing that their sales are continuing to fall, but at a less rapid pace.  That’s a bit of a backhanded compliment—things are still bad but they aren’t as colossally bad as they’ve been.

We’re experiencing a generational shift in how consumers buy things.  Stocks like Macy’s and Kohl’s and other retailers are getting hammered, but all that business isn’t just evaporating.  It’s shifting to other companies like Amazon who are giving consumers those same goods just in a different way.  For the overall economy that’s a good thing, a great thing.  There will be winners (Amazon) and losers (Macy’s) but overall we’ll end up ahead, and that’s good for the stock market.

Living the dream on the cheap

“Dreams aren’t expensive, they’re priceless”



Last year, I had an incredible opportunity to going sailing through the Panama Canal and up the Pacific coast of Central America with family friends Jim and Laura.  I chronicled it in several posts on this blog.

It was an amazing opportunity on so many levels.  Who doesn’t love the chance to be on the ocean, see Mother Nature at her purest and most beautiful, stop in hidden paradises, and on and on?

On the trip I got the chance to learn the Jim-and-Laura story.  It’s quite amazing (but maybe not—you’ll see what I mean at the end of this post).  When they retired, they sold their condo and pretty much all their worldly possessions, bought a boat, and adopted the sailing lifestyle.  They’ve been doing that for the past 10 years, and have never looked back.  They are such an inspirational couple.

Whenever I share this story, or how the idea of sailing around the Caribbean or the world is really appealing to me, one question, sooner or later, always comes up: How could a normal person afford that?


Before you read on, ask yourself these two questions:

  1. How much does it cost to live on a yacht in the Caribbean, going from beautiful beach to beautiful beach, totally living the dream?
  2. Could I afford it?

Think of your answer and then read on to see if you’re right.  Hint, I bet you are way high on #1 and I bet #2 is actually “yes”.


My time with Jim and Laura, as well as following a number of sailing blogs has taught me that living your sailing retirement dream really isn’t all that expensive.  Sure, it’s easy to bring to mind an image of the mega-rich on their mega-yachts, and instantly dismiss the idea as out of reach.

Yet, I think this really illustrates how attainable this AND MOST RETIREMENT DREAMS ARE.


The cost of Jim and Laura’s sailing dream

Jim and Laura (“J&L” from now on) were very open regarding their expenses, which I really appreciated because it gave me some real insights into this.  They were even more open to allow me to post this on my blog—so Thank you Jim and Laura.

The first thing you need is a boat.  J&L got a used 36-foot yacht for about $90,000 then they put about $2,000 in to it for upgrades and repairs.  It has a kitchen, bathroom, and two bedrooms.  When it was all said and done, they spent $92,000 on their boat.  That’s really the only major purchase you need to make.  Everything else is just living expenses.

Living the boating lifestyle is amazingly affordable.  About half the time they “park” their boat at an anchorage (literally, drop their anchor near a beach and just hang out there).  These are usually free.  Other times, they dock in a marina.  Marinas cost money and can vary widely based on the amenities they offer, but J&L said that $500 per month was a good baseline.

Maybe think of that as their housing expenses—a $92,000 down payment and then a $500 mortgage.  For that they have the best backyard in the world (the ocean and beaches).  Depending on your tastes, maybe it’s a bit small, but more on this in a second.  All in all, that seems like a screaming deal.

A sailor doesn’t survive on shelter alone.  There’s that other expense called . . . food.  J&L’s experience is that groceries tend to cost fairly similar amounts in the US and the places in the Caribbean they visited (about 10 or so countries, so they did get a fairly diverse perspective).  Let’s call that a wash to slightly favorable for J&L.

The other component of food—dining out—tends to be a fairly important component in retirement.  Data shows that people go out to eat a lot in their 50s and 60s and 70s.  This is one of the places where the sailing lifestyle really pays off.  Nearly all the places where people would anchor or dock have restaurants on the beach that appeal to the tourist set.  These places tend to be inexpensive compared to US standards.  When I was sailing and we went out to dinner, I consistently got really good meals (mostly seafood, but not always) that in the US would cost $30-40 and they would cost about $10-15.  J&L said that was fairly common.

Healthcare is another big expense that we all think about, especially in our later years.  A huge benefit about living in those Caribbean countries is that healthcare is very affordable.  Standard check-ups and prescriptions cost pennies on the dollar compared to US prices.  More complex procedures (Laura had a small surgical procedure), almost all dental work, and stuff like laser eye surgery are similarly cheap.  Fortunately, J&L didn’t have personal experience with more complex and uber-expensive stuff (cancer diagnosis, pacemaker, artificial joint, etc.), so it’s hard to say on those.  But the majority of healthcare expenses that we’re most likely to have are much, much less expensive that would be in the US.

Many common expenses like clothes and entertainment are a lot less.  With clothes, the wardrobe for a sailor is much simpler (bathing suits, shorts, and t-shirts plus a Hawaiian shirt for special occasions).  For entertainment, they still go to movies, see the sights like amusement parks and zoos, and things like that, but they are much less in the Caribbean.

Other common expenses are eliminated like car payments and other car expenses, cable (they just stream stuff on the internet and have Netflix), and property taxes.

Certainly there are expenses that they have which land-lovers don’t.  Since they don’t have a car if they want to go somewhere that usually requires a taxi, but those tend to be cheap (it cost me $100 to take a taxi completely across the entire country of Panama).  Also, there is boat maintenance.  The salt water is incredibly corrosive so that causes a lot of damage.  In Jim’s words “there is always something that needs to be fixed.”  This can be the $50 variety or the $500 variety and on up.  Probably once a year they take the boat completely out of the water and check everything out.  All said, Jim estimates they spend about $2,500 per year on boat repairs.

Plus, there are boat-specific expenses like boat insurance and weather reports.  They also take trips back home to see family, and other stuff like that.  But those don’t tend to be big line items.


As expensive as you want to be

Most people are surprised when I share these stories about sailing.  The image tends to be scenes from Lifestyles of the Rich and Famous showing mega-yachts with people with large sunglasses and white leisure suits sipping on champagne poured by servants.

Certainly that’s there.  In a marina we were at in Panama, 98% of the boats were like J&L’s.  But the boat that got the most attention was a 75-foot catamaran.  At dinner with the other sailors we would speculate that it probably cost $5-7 million.  Maybe they were drinking champagne (I never got close enough to be able to tell), but we were drinking local beers that cost $5 for a bucket of six.

This 75-foot catamaran was the talk of the marina. It was beautiful, spacious, and also pricey.

You could apply this concept to everything.  If you wanted to go to super nice restaurants every day you could and it would cost more.  But J&L and the vast majority of people doing what they were doing would go to a nice restaurant every once in a while, but most of the time went to nice but affordable places.

For J&L, they probably wish their boat was a bit bigger.  At 36-feet, it’s a bit cramped.  When I visited, there was certainly room for all of us, but it was cozy.  They could get a 40- or 45-foot boat and maybe even go with a catamaran.  That would give them more room, but of course those things cost more.

It seems true with boats as with most luxury things (ski condos, Manhattan apartments, beach houses), that the nicer, bigger, more complex you get, costs go up in a hurry.  For J&L, they could still probably go a little nicer/bigger and stay at a reasonable costs, but looking at that 75-foot catamaran as an example, it’s easy to let costs explode.


The reason I think this is so important is because for so many people retirement expenses loom like some kind of enormous monster.  Sure, they’re there, but probably not as bad as you think.  Certainly, you have a lot of control over how mean and big and scary that “retirement expense monster” is going to be.

This seems particularly true with an example of retiring and sailing around the Caribbean.  Just at first glance it sounds prohibitively expensive.  I wonder how many people give up that race before they even try.

Sailing is the example I used because I am most familiar with it, and it’s nearest to my heart, but I think you could tell a similar story with a beach retirement or skiing, or traveling.  All those can be super expensive if you throw caution to the wind and spend, spend, spend.  However, if you take a more moderate approach I think you’ll be amazed at what you can afford and how achievable your dream retirement can be.

As you might expect, I was very curious about all this and spent a lot of time talking to Jim about this.  At the end of the day, Jim threw out a number saying, “All in, you could live like a king on $3,000 a month.”  Yowza.  I hope that makes you sleep better dreaming about living on a beach.

Now that we’re at the end of this post, what were your answers to those two questions when you first started reading?