Investing in good times
When I was a kid (in the 1970's) my dad LOVED to talk about the power of compound interest, how saving just a small amount every month a person could retire at 65 with a million dollars.
Overall I wasn't impressed by his argument, not at 12, nor at 39. My argument then would be be pretty similar - basically that inflation changes the exponent significantly. Even my dad should have got this in the high inflation 1970's, although I guess our house did pretty well, at least holding with inflation.
Useful things like homes do well as long as people can afford them. Looking at a graph of home value for the last 40 years, the only REAL significant increase over inflation would be since 1999. Between 1964 and 1999, my home, in 1964 dollars was worth between 13k-18k, steady, low actually in 1995. Since 1999 the value has doubled to $26k (again in 1964 money).
These graphs are based on the CPI figures from:
http://research.stlouisfed.org/fred2/series/CPIAUCNS/downloaddata
Interestingly some claim inflation figures are manipulated now. Obviously if "actual inflation" was running at 6% people would not be loaning money at 5%. I don't know if I believe such things, not to say there's not inflation, but I accept it is "hidden" in cheap imports and trade deficits and of course the "energy bubble" that has dominated the years since WWII.
Some may call me foolish to pay off my (partial) mortgage in 5 years, hopefully finishing next year. I've got a ARM that adjusts after 5 years, and at 5% fixed now. When its paid off my "minimum expenses" will drop $500/month, even excluding extra principle I pay now. I'll then redirect the extra to a rental property mortgage, also a 5-year ARM, now 4.75%, but could increase to 10.75% cap.
For me reducing my debt is a "no brainer". My coworker, when he moved, invested all of his first home's equity into stocks, and full mortage on new home, right around 1999. He said he's only now got back his "principle" stock investment. Meanwhile even with his 5.2% mortgage, he's lost money on interest because of his gamble. I say "haha", but assuming "smooth sailing economy" he'll always win the long run.
For me, I see an insane money system, exponentially expanding. America is taking advantage of our historical position as "world currency". We can say "haha" that the world has to pay for our excesses, but as anything when accountability can be avoided, we're the one's who'll have to recognize our delusions when self-interested competition pulls away our easy street.
It's hard to be a pessimist in good times. I've gotten unexpectedly good stock awards at work, bonuses, and dividends for a few years now. I'd rather they do that than raise salary which might be unsustainable, AND I don't expect it. BUT I do try to invest it. I'm somewhat corruptable by apparent easy wealth, but still a pretty small fraction of my cash flow.
Overall I'm content to put extra money into mortgage reduction, even at the expense of my 401(k) or Roth IRA.
Overall I judge my dad's view of compounding interest as delusion. A young person who puts away money for retirement must be dependent upon others to earn interest on that money for him, while that money invested directly in reducing debt is a better use for a young person's money.
Maybe its not true for low interest student loans or even prime mortgages (interest tax free), but for me it's reduced simply to the idea that I want control over where my money is invested, even if that investment never benefits me directly, like a donation, or helping somone.
I do have some tricky questions coming up, if the boat keeps sailing a few more years - how much do I invest in my own well being (my own future), versus investing in community OR even investing in a small business that can help more people than I could ever help alone by charity.
As much fun as it is to call rich people "stingy" for keeping their millions, I accept the argument that investments NOW are what create prosperity in the future. As much as I would LIKE to idolize government's power of wise spending, I accept at least half as much, individuals with vision, perseverence, and "capital" can do some amazing things (even as much as they can do very silly things that move us further in the WRONG direction.)
Anyway I suppose a time will come when I will have to decide:
1) Do I continue investing to "minimize" my expenses?
2) Do I start investing in ways to minimize my community's expenses?
A friend suggested not only can I invest to improve the world, but get a healthy profit as well. I get STUCK there - the profit motive is necessary BUT it also risks looking too closely at "investing as wealth generation" rather than "investing as responsibility".
On the other side, I'm not a risk taker anyway. At least when I feel secure in my fianances I can see surplus income as something I don't expect to gain anything from, and find others who have a good use for it, I'm just as happy to surrender it and hope for the best, even if THEY make a million saving the world.
Anyway I'm mostly just disturbed how spoiled Americans are for their sense of entitlement for energy and opportunity. We're all a lot weaker than we admit in the daylight, and it doesn't help how wasteful we are.
I talked to a guy at a party on Saturday about an online community called "Second life", a virtual world. He said his specialty was designing waterfalls. I'm sort of curious, like a sociologist would be looking at a primitive tribe, wondering what brings them fullfillment and what structures keep the tribes together. Overall I "don't get it". Under you can get a virtual world where you can get all 5 senses involved, it seems pretty dry and unattractive.
I suppose ONE interesting thing about virtual worlds, how people can find value in them, similar to how people can believe they live in the "real world" around them, but have no real idea what is supporting them or how long it can last. It's just a black box - input and output, and hope that it keeps working.
I can think of this fun essay:
http://wwwcdf.pd.infn.it/~loreti/science.html "Cargo Cult Science", by Richard Feynman
And on prediction of what reality is, you gotta have fun with the doom cults:
Until then, I hope I'll make the right choices, and appreciate our unearned affluence!
Overall I wasn't impressed by his argument, not at 12, nor at 39. My argument then would be be pretty similar - basically that inflation changes the exponent significantly. Even my dad should have got this in the high inflation 1970's, although I guess our house did pretty well, at least holding with inflation.
Useful things like homes do well as long as people can afford them. Looking at a graph of home value for the last 40 years, the only REAL significant increase over inflation would be since 1999. Between 1964 and 1999, my home, in 1964 dollars was worth between 13k-18k, steady, low actually in 1995. Since 1999 the value has doubled to $26k (again in 1964 money).
These graphs are based on the CPI figures from:
http://research.stlouisfed.org/fred2/series/CPIAUCNS/downloaddata
Interestingly some claim inflation figures are manipulated now. Obviously if "actual inflation" was running at 6% people would not be loaning money at 5%. I don't know if I believe such things, not to say there's not inflation, but I accept it is "hidden" in cheap imports and trade deficits and of course the "energy bubble" that has dominated the years since WWII.
Some may call me foolish to pay off my (partial) mortgage in 5 years, hopefully finishing next year. I've got a ARM that adjusts after 5 years, and at 5% fixed now. When its paid off my "minimum expenses" will drop $500/month, even excluding extra principle I pay now. I'll then redirect the extra to a rental property mortgage, also a 5-year ARM, now 4.75%, but could increase to 10.75% cap.
For me reducing my debt is a "no brainer". My coworker, when he moved, invested all of his first home's equity into stocks, and full mortage on new home, right around 1999. He said he's only now got back his "principle" stock investment. Meanwhile even with his 5.2% mortgage, he's lost money on interest because of his gamble. I say "haha", but assuming "smooth sailing economy" he'll always win the long run.
For me, I see an insane money system, exponentially expanding. America is taking advantage of our historical position as "world currency". We can say "haha" that the world has to pay for our excesses, but as anything when accountability can be avoided, we're the one's who'll have to recognize our delusions when self-interested competition pulls away our easy street.
It's hard to be a pessimist in good times. I've gotten unexpectedly good stock awards at work, bonuses, and dividends for a few years now. I'd rather they do that than raise salary which might be unsustainable, AND I don't expect it. BUT I do try to invest it. I'm somewhat corruptable by apparent easy wealth, but still a pretty small fraction of my cash flow.
Overall I'm content to put extra money into mortgage reduction, even at the expense of my 401(k) or Roth IRA.
Overall I judge my dad's view of compounding interest as delusion. A young person who puts away money for retirement must be dependent upon others to earn interest on that money for him, while that money invested directly in reducing debt is a better use for a young person's money.
Maybe its not true for low interest student loans or even prime mortgages (interest tax free), but for me it's reduced simply to the idea that I want control over where my money is invested, even if that investment never benefits me directly, like a donation, or helping somone.
I do have some tricky questions coming up, if the boat keeps sailing a few more years - how much do I invest in my own well being (my own future), versus investing in community OR even investing in a small business that can help more people than I could ever help alone by charity.
As much fun as it is to call rich people "stingy" for keeping their millions, I accept the argument that investments NOW are what create prosperity in the future. As much as I would LIKE to idolize government's power of wise spending, I accept at least half as much, individuals with vision, perseverence, and "capital" can do some amazing things (even as much as they can do very silly things that move us further in the WRONG direction.)
Anyway I suppose a time will come when I will have to decide:
1) Do I continue investing to "minimize" my expenses?
2) Do I start investing in ways to minimize my community's expenses?
A friend suggested not only can I invest to improve the world, but get a healthy profit as well. I get STUCK there - the profit motive is necessary BUT it also risks looking too closely at "investing as wealth generation" rather than "investing as responsibility".
On the other side, I'm not a risk taker anyway. At least when I feel secure in my fianances I can see surplus income as something I don't expect to gain anything from, and find others who have a good use for it, I'm just as happy to surrender it and hope for the best, even if THEY make a million saving the world.
Anyway I'm mostly just disturbed how spoiled Americans are for their sense of entitlement for energy and opportunity. We're all a lot weaker than we admit in the daylight, and it doesn't help how wasteful we are.
I talked to a guy at a party on Saturday about an online community called "Second life", a virtual world. He said his specialty was designing waterfalls. I'm sort of curious, like a sociologist would be looking at a primitive tribe, wondering what brings them fullfillment and what structures keep the tribes together. Overall I "don't get it". Under you can get a virtual world where you can get all 5 senses involved, it seems pretty dry and unattractive.
I suppose ONE interesting thing about virtual worlds, how people can find value in them, similar to how people can believe they live in the "real world" around them, but have no real idea what is supporting them or how long it can last. It's just a black box - input and output, and hope that it keeps working.
I can think of this fun essay:
http://wwwcdf.pd.infn.it/~loreti/science.html "Cargo Cult Science", by Richard Feynman
And on prediction of what reality is, you gotta have fun with the doom cults:
http://www.oilcrash.com/articles/arnett05.htm
The most probable, critical sequence time-line:
- 1979 US per capita energy use peaked; still floundering on a plateau in 2006, but ready to fall precipitously (‘cliff’) at any time
- 2005 World crude oil probably peaked; still on an undulating plateau in 2007; starts off the ‘cliff’ ~2010-2012 or before
- 2005 World food production (grains) peaked
- 2008 World Natural Gas peaks (or sooner)
- 2010 NG ‘cliff’ arrives (or sooner)
- 2012 US electricity blackouts and brownouts become the norm (or sooner)
2012 US potable, available water peak and ‘cliff’; shortages and waterborne diseases increase - 2015 US Health Care System in complete chaos, breakdown and failure; sanitation, drugs, return of communicable diseases, poorer nutrition, etc.
- 2015 World “Dieoff” begins in earnest; largely starvation, disease and poor healthcare caused
- 2030 US per-capita energy consumption hits the “30% mark-AFTER peak”, equaling year 1930 lifestyles again (probably much sooner than 2030)
Until then, I hope I'll make the right choices, and appreciate our unearned affluence!
posted by Ares Olympus at 3:21 PM
0 Comments:
Post a Comment
<< Home