Simplify, Simplify

The sculptor produces the beautiful statue by chipping away such parts of the marble block as are not needed – it is a process of elimination.
Elbert Hubbard

My job offers a variety of training classes (like the one on resolutions, discussed here). Some are business related and some not (I am taking a History of Chocolate class and an Architecture Walking Tour of Park Avenue class later this summer – feel free to be jealous). So far I have enjoyed everything, and this week’s class on Getting Things Done (“GTD”) was no exception. At the surface, the class (and book by the same title) sounded like yet another dull please-just-kill-me-and-put-me-out-of-my-misery business diatribe on efficiency. However, to my surprise, the main message boils down to a thought-provoking dichotomy:

1. Simplicity – is it really necessary?

The first question is simplicity. There is a certain beauty to simplicity that our society has forgotten in its craze to acquire ‘stuff’ – both material items and career status symbols. When measuring success, more stuff is always better – but why is that? Why can’t we ascribe success to a few key things that really matter to us, like strong family relationships? We humans have a tendency to take the simple and make it unnecessarily complex; with that habit comes overburdened schedules and burn-out. The bottom line in GTD is that as things come on our ‘to do’ list radar, decide first if they’re really necessary. If they aren’t part of your core goals, don’t let them clutter up your list (or your life).

2.       2. Actionability – is there anything I can do about it?

The second point is actionability. Take the time to think about whether you can do anything about your goals/tasks… or if you are waiting for someone else… or if it simply isn’t the time and place to do anything. If the first scenario, create one small, concrete next step for yourself. Want to write a novel? Great, but if ‘write a novel’ is sitting on your to-do list, it’s just a huge, intimidating albatross that you’ll never do anything about. Instead, think to a specific next step. Perhaps you should start by taking a writing class, which means you need to find a writing class. So “Google to find writing class” goes on your list.

For goals/tasks where you are waiting on someone else, GTD suggests creating a ‘waiting on’ list that includes who/what you’re waiting on, and what time you expect to hear back. This keeps everything organized, and avoids that nagging feeling that you have to remember everything (or the panic of ‘Oops, I never heard back and I forgot to follow up with them so I missed  the deadline’).

The last scenario is a bit more subtle – those ideas that seem great but just don’t fit right now. Rather than lose track of the goals or chalk them up as impossible, GTD suggests a ‘sometime maybe’ list. Review this list weekly to see if any of the items are feasible to begin working on. If not, no worries; leave them on the list until circumstances change.

Well, that’s about it – GTD in a nutshell. But to borrow from our friend Thoreau, the real message here is: Simplify, simplify

Investment Glossary: A Cruise to Tahiti, Part II

I know you have no doubt been eagerly awaiting Part II of this post since Part I came out. Well, you can stop refreshing your browser every three minutes and breathe a sigh of relief; Part II is here!

Without further ado, a glossary of investment options:

CD (Certificate of Deposit): CDs are typically very straight-forward. The bank sets a rate (floating, meaning it varies with interest rate changes, or fixed) and a maturity (1 year, 5 years, etc). You agree to lock in your moolah. The advantage is ease of use, steady returns, and no broker fees; the disadvantage is your money is very illiquid (you’ll pay penalties to get it out before maturity), and interest payments may stink (like they do right now). Verdict: low risk, low return.

Bonds: When you give someone money for a bond, you are essentially giving a loan to a certain counterparty (or basket of counterparties). The counterparty then pays you interest, and returns your money in full at maturity. This is all hunky-dory, except for Default Risk (i.e. the chance that your counterparty doesn’t pay you back and you’re screwed). Because of this risk, bonds are sold based on credit ratings from AAA (the best) to D (in default). Anything below BBB- is considered a ‘junk’ bond. These low-rated bonds are also called ‘high yield’ bonds because the interest rates are so high. But don’t be fooled by the name; interest rates are high because there’s a good chance the counterparty will never pay the money back. Verdict: Ranges from low risk to very risky depending on the credit rating.

Derivatives: I almost didn’t include this one, since it’s too risky/complex for the average investor, but for the sake of information (and because most people look at my husband blankly when he says he works with derivatives), I’ll discuss them briefly. A derivative is something that behaves according to something else (think back to Calculus here). So a derivative on corn will give you exposure to market gains/losses on corn without having to actually own bushels of corn. You can basically buy a derivative on anything… and despite the bad press, derivatives can help business lower their risk. Let’s say Firm A has a $1M services contract with Firm B. Firm A then buys a $1M derivative that moves opposite to Firm B’s performance. If Firm B goes out of business, Firm A loses its $1M contract, but has protected itself (i.e. “hedged”) and earns $1M from the derivative, essentially breaking even. This can easily go amuck when companies use derivatives for gambling purposes rather than risk hedging. If you don’t believe me, check out Jérôme Kerviel who single-handedly lost $7B in risky derivative bets within Societe General. Verdict: Useful for mitigating risk, but can also be exceptionally risky if used speculatively… leading to big returns or disastrous losses.

ETF (Exchange Traded Funds): These have gotten a lot of buzz in the past couple years. An ETF essentially just tracks a specific fund, like the Spider (ticker: SPY) which tracks the S&P 500. A plus to ETFs is that fees run lower than mutual funds, but they also tend to be riskier since they are more likely to have a narrower focus than a mutual fund. There also isn’t an active manager (which a mutual fund has) to rearrange assets. So if you’re in an energy ETF, you are locked into following that index, whereas an energy-focused mutual fund would have a (theoretically) nimble money manager who could sell oil and buy solar energy if he thought the oil market was tanking. Verdict: Higher risk than a balanced mutual fund, but lower fees and easier direct access (if you want it) to a specific product/market.

IRA (Individual Retirement Account) / 401 (k)/ 403(b): I won’t go into another saving for retirement rant as this was covered in Part I. But strictly in terms of definitions, a 401(k) and IRA are identical concepts (lock away money for retirement), with the only difference being that a 401(k) is run by your employer and often includes employer matching. A 403(b) is the 401(k) equivalent for non-profits. Both 401(k)s and IRAs can either be tax deferred (contributions aren’t taxed now, but contributions + earnings are taxed when withdrawn at retirement) or Roth (contributions are taxed now but contributions + earnings are tax free when withdrawn). Generally the Roth comes out to be a better deal, unless you are in a very high tax bracket now (:: cough:: NYC residents :: cough:: ) or expect to be in a very low tax bracket in retirement. Verdict: A no-brainer if you don’t want to be eating Ramen Noodles six days a week when you’re 80.

Lifetime (or ‘Target Date’) Funds: These handy funds are based on a target date for your retirement (say 2050). Investments are automatically re-allocated based on your time horizon. So young investors’ target date funds are in higher risk investments (stocks), then are re-balanced to less risky ones (bonds, treasuries) as you near retirement. Verdict: Compare fees, but overall it’s a great low-maintenance option for retirement plans.

Money Markets: Highly liquid (though not as liquid as a true cash savings account) short term investments, with interest rates slightly above pure cash. If you think you might need access to the cash soon, go with this option over a CD or mutual fund. Verdict: Low risk (though a bit higher than a CD if counterparties default), moderately low return.

Mutual Funds: Mutual funds are essentially baskets of investments. An easy example is a Blue Chip Mutual Fund, which means you (and say 99 other investors) would put in $100 each and the fund would use the total $100,000 to buy a variety of stocks like Microsoft, GE, etc. Mutual Funds don’t have to be just stocks – they can also include bonds, commodities, and other investments depending on which ones you have signed up for. Many also have specific geographical focuses, so you can choose to invest specifically in domestic/European/emerging markets, etc. Watch out for the fees on these funds as they can vary widely! Verdict: A balanced risk approach to investing, but mind the fees.

Treasuries: Traditionally these were as low-risk as it comes – US Treasuries pay a certain interest rate over a set maturity (a very similar set-up to CDs). The US has never defaulted on debt, so treasuries are considered ‘risk-free.’ Of course, given our current fiscal crisis and ballooning debt, who knows. I can’t imagine the US defaulting on their debt… but then again, if a company ran its finances the way our country runs its budget, it would have gone bankrupt long ago. Verdict: Historically risk-free, low return

There are many more investment types out there, but for the sake of space and boredom levels I’ve just hit the highlights. If you have specific questions on these or other types of investments, leave a comment and I’ll do my best to answer!

A Cruise to Tahiti (bring your dentures)

It has been a crazy couple of years for the economy. The DOW was at 14,000 (in 2007). Then it was a little over 6,000 (in 2009). Now it's hovering around 12,000. Amid the oil scares, gold price spikes, unemployment fluctuations, and general global upheaval there is a lot of confusion about whether or not to invest... and of course (if you choose to), where to put your money.

Let me disclaimer here that I am not a Certified Financial Planner. In other words, I'm spouting off some thoughts as a CPA whose parents started me on a Roth IRA in middle school, but don't follow my advice, lose millions, and then come sue me. I don't have much money to be sued for anyway :o).

That said, I think there is a lot of confusion out there regarding financial planning, especially for my peer age group, which is out of college, and often debating grad schools/new families/buying homes. So what to do first? Pay off student loans? Pre-pay a mortgage? Save for retirement? And how do we create a budget? Below are some thoughts on what to tackle... in order of importance!...

1. Create a budget (easy to do... hard to stick to)
There's a CNBC TV show that I find interesting (although I think I'm one of approximately four total viewers), where a financial adviser named Gail Vaz-Oxlade visits couples in debt and gives them a budget and challenges to complete over the course of one month... if they do, she gives them $5,000 to help pay down their debt. Her whole shtick is that people who struggle to stick to a budget need to learn to live on cash, write everything down and keep budgeted cash in jars (a food jar, a transportation jar, etc) so you can visually see where you stand weekly. My parents actually did something similar with my brother and I when we were younger - we had savings/spending/church jars, each of which received 1/3 of our weekly allowance. The linked site to Gail's blog actually includes a very useful interactive budget worksheet, but the basic idea is that you save a minimum of 10%, and spend no more than 35% on housing, 15% on debt repayment, 15% on transportation, and 25% on "life" (the variable stuff like food/clothing/fun).

So that answers question 1, how much should I put toward student loans/other debt (max of 15% of your income, for those who lost interest and started skimming - you know who you are!) But what if you're not in massive debt and have some cash set aside? What to do with it?

2. Establish a liquid emergency fund. Stash enough away to cover 6 months of expenses - and keep it liquid enough that you can easily get to it in an emergency (i.e. not in stocks!). The recent lay-offs and scary unemployment numbers are enough to drive home to importance of this one.

3. Start saving for retirement I know this one sounds like a bummer (what fun is saving if you don't get to do anything with it for 50 years?!) but starting early here is critical... due to our friend, the strange Compounding of Math. Let's say you save $50,000 and it earns 6% a year. Save it when you're 45 and you'll have $160,356 at retirement. Not bad. Save the same amount at 35 and you'll have $287,175 at retirement. Ooo, sounding better! But wait - save the same amount at age 25 and you'd have $514,286 at retirement! Starting just a few years earlier makes a huge difference in what you'll end up with. And PLEASE PLEASE PLEASE put inenough money into your 401(k) so that you maximize any matching from your employer. It's free money. Enough said.

Roth IRAs are nice options because the earnings is tax free when you withdraw it at retirement. So you pay tax on the original $50,000 you invested, but that extra it earns along the way ($464,286, assuming this blog is rapidly frightening you into saving early for retirement and you opted for our 25 investment age above) is TAX FREE! Nice. Roth 401(k)'s are the same deal - you pay tax on the principle now, but anything it earns along the way is tax free. (If you're wondering what difference a Roth makes (and I'm pretty sure you're not), regular 401(k)s are tax free now to contribute, but principle and earnings are both taxed at retirement).

A scary statistic? Many retirement planners recommend saving 1.5x your annual income by age 35 to consider yourself 'on track' for retirement. But anything is better than nothing!

4. Save for yourself (or your kids)
So you're on a budget, paying down debt, saving for retirement, what now? This is the fun section, saving for yourself! You could start 529 plans for your kid's college (kind of like a Roth, investment growth is tax free if you use it for college expenses)... or that bigger house... or investing to build up a nest egg (mutual funds, money markets, CDs, bonds, treasuries, etc).

What are the different investment options, you say? Well, there's about a 2% chance (if I'm generous) that you've endured all the way to the bottom of this post, so I'll defer that excitement until that glazed look in your eyes fades slightly. Stay tuned for part 2 of the post. In the mean time, happy saving! Perhaps we could all plan now to take a cruise to Tahiti together when we're 80 on that well-saved surplus retirement money? :o)

Where Have the Good Men Gone?

Chris pointed out an interesting article in the Wall Street Journal to me today titled Where Have the Good Men Gone?. It essentially argues that the rise of womens' economic status, the difficult job market for early 20-somethings, increased disposable income, and the delay in marrying ages has created a growing generation of "pre-adulthood guys" who are not boys but who are also not willing to 'man up' to adult life.

As a female, I don't have much perspective as to whether or not the author has accurately delved into the male psyche, but Chris brought up some interesting points that he thought the author missed, which I will defer to as the resident male opinion :o) :

1. An education system that favors women: While the glass ceiling is still an issue for women rising in business/upper management (they represent only 3% of Fortune 500 CEOs, and make 77 cents on the dollar to men in identical positions), early education tends to favor girls in the sense that it focuses upon visual/auditory learning in settings requiring sitting still for long periods of time. At least in the early years, this leaves out boys who are typically more active, and more commonly kinesthetic learners (those who learn by doing) than girls.

2. Lack of strong male role models: When a couple splits, the mother typically raises the children. Rising divorce and unwed parent rates mean that unprecedented numbers of children are raised in mother-only environments. This means boys are growing up without strong male role models, unless community members or other relatives will step up to the plate. Missing men from one generation means the next generation grows up not knowing how to act, perpetuating the cycle.

3. A "safe" society: political correctness is awash in our rhetoric, but there is a parallel movement to have a 'safe' society as well as 'safe' speech. Thus fewer risks are encouraged; gone are the days when boys could roam free outdoors a-la-Andy Griffith style - instead they are encouraged to stay safe, study hard, and shoot for a 'successful' job... which is usually defined as a well-paid desk job.

4. A services ecomony: Our society places a premium on 'intellectual' rather than physical work - the best paying jobs are in services such as lawyers, bankers, doctors. With the rise of outsourcing in a global economy, manufacturing and other industrial jobs are increasingly scarce and increasingly poorly paid. As men are statistically much more present in manufacturing jobs than women, economic globalization has hit them particularly hard. As Newseek noted this week, of the 15 industries projected to grow the most in the coming decade, 13 are primarily staffed by women.


So what do you think? Where have all the good men gone?

(Of course, I know where one good man has gone... I married him!)

A Narnian Approach to the State of the Union

Battling a sinus bug, I have been doing more couch-sitting than usual this weekend, and my inert pursuits included watching The Chronicles of Narnia: Prince Caspian and reading Laurie Fabiano's Elizabeth Street. While one deals with the exploits of children rescuing Narnia and the other with the moving true story of Italian immigrants beginning life in New York City in the early 1900s, both surprisingly reinforce the danger of dwelling on what might have been.

In Prince Caspian, Lucy searches for Aslan and asks him if lives could have been saved if she had looked for him sooner. He replies:

“To know that would have happened, child? No. Nobody is ever told that. But anyone can find out what will happen. If you go back to the others now, and wake them up; and tell that you have seen me again; and that you must all get up at once and follow me—what will happen? There is only one way of finding out.”

Elizabeth Street's main characters, a close-knit family of Italian immigrants, face deaths from construction mishaps, mob kidnappings ignored by corrupt police, and appaling living conditions in tenements. But unlike Lucy, they do not bother asking what might have been. They simply go on with their lives, through tragedy and hardship, starting over again and again in single-minded determination that their children will have better lives, that they will not have to 'scrape plaster from the wall to mix with the flour.'

The sense of looking to the future without dwelling on what might have been could better serve our generation than our typical reaction of passing blame as we face looming specters of swelling national deficits, stagnant employment, and weak economic growth. As a New York Times opinion article points out, 'it takes years' to make changes. But the only way to find a solution, is to look forward, trying solutions and seeing what happens. Simply wondering what might have been will get us nowhere.

Remaining Awake Through a Great Revolution

"All I'm saying is simply this: that all mankind is tied together; all life is interrelated, and we are all caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly. For some strange reason I can never be what I ought to be until you are what you ought to be. And you can never be what you ought to be until I am what I ought to be - this is the interrelated structure of reality.

John Donne caught it years ago and placed it in graphic terms: No man is an Island, entire of itself; every man is a piece of the continent, a part of the main... And then he goes on toward the end to say: any man's death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee. And by believing this, by living out this fact, we will be able to remain awake through a great revolution."

- Martin Luther King, Jr - Commencement address for Oberlin College

Monday is Martin Luther King, Jr. day. More than a bank holiday, it is a celebration of what Dr. King stood for: unity of humanity, fought for through peace. Today I don't really have anything to say; King's words speak for themselves, more powerfully then I could ever hope to reword them.

While I am not what I should be, and you are not what you should be, let us take hope in God, and take hope that King's message will continue to be heard and remembered.

Is This the New Year?

Tonight is New Year's Eve, a famous moment for clinking glasses, looking back on the past year's triumphs (or regrets) and hoping that the new year is a clean beginning of fresh blessings to come. Along with said champagne and reminiscing thoughts usually also comes a resolution - that this will finally be the year we lose weight, are nicer to people, save more money, volunteer more, or __[fill in the blank]__. My office offers some relatively random but usually enjoyable training classes, and I took one earlier this month called "This Year I Will" (taught by M.J. Ryan who also has a book by the same title). The gist of the class was that we need to keep in mind a couple key items to actually succeed in those well-intentioned resolutions:

1. Be specific (this includes lots of annoying 'hows?' - like how will you save money? what are you willing to do to lose weight? how will you specifically measure accomplishing your goals? etc etc)

2. Positive feedback. Our instructor pointed out that after someone receives a job review in which the majority of items are things they need to improve on, their job performance typically drops by an average of 28%. Whereas people with largely positive reviews subsequently improve their job performance. Why? We are wired for positive feedback (or so says Ms. Ryan). Her point is, if we make a resolution to go the gym 5 times a week and we only go twice, we usually respond by telling ourselves how pathetic we are that we only went twice. Instead we should congratulate ourselves on successfully going twice, and consider next week a new start.

The moral of the story? Pick a resolution that is something you truly want to do. Then give yourself a break after the stumbles along the way. (After all, as Ryan explained, babies learning how to walk don't tell themselves "Stupid baby!" after falling, they just ignore the fall and keep going).

In a somewhat related tangent, my godparents introduced Chris and I to New York artist Ian Axel. One of his songs (sung with Chad Vaccarino) is "This is the New Year." Besides an appropriate title for this time of year, the lyrics are a good reminder of the true meaning of a new year - that in the end we have one another. So let's toast to a new year, a new beginning, ignoring skinned knees we may pick up along the way, and embracing who we are and who we find along the way.

Another year you made a promise
another chance to turn it all around
and do not save this for tomorrow
embrace the past and you can live for now
and I will give the world to you

Speak louder that the words before you
and give them meaning no one else has found
The role we play is so important
we are the voices of the underground
and I would give the world to you

Say everything you’ve always wanted,
be not afraid of who you really are,
cause in the end we have each other,
and that's at least one thing worth living for...