Do You Believe These Money Myths?

There are a lot of different things you’ll read when it comes to your money.  The personal finance world has lots of people with many opinions.  I’m one of them!  But with so much out there, it can often get confusing.  What do you believe?  What’s true and what’s a suggestion?  I don’t have all the answers.  But there are a few money myths that I’ve seen come up more than a few times.

#1: Always Pay The Higher Interest Loan First

The higher the interest rate means that less of your payment goes to your principal.  This is true.  So, you should always pay the highest interest loan first, right?

Not always.

I think you have some flexibility here.  If you have a loan with a low balance, maybe consider paying that off first.  It will free up some cash flow.  Plus, paying off a loan will give you a ‘win’ on your scorecard.  Those can be very important and might be worth a few bucks in higher interest in the short term.

#2: It’s Too Late To Start Saving

Many people start saving for retirement or their first home right out of the gate.  If you’re one of those people, then congrats.  But if you’re not, don’t worry.

It’s never too late to start saving.  I don’t care how old you are.  Many people who give this answer are just making excuses to continue bad habits.

I don’t care if you have friends that are your age who are already retiring and you haven’t saved a buck.  You should and you can start making a difference.

#3: You Have To Choose Between Paying Off Debt Or Saving Money

I’ve read at least a thousand pieces over the years on this topic.  Which is better if you have extra money?  Paying off debt?  Or saving/investing?

I’ve never understood why people think it has to be either or.  It doesn’t.

If the answer isn’t clear or you don’t have motivation toward one, why choose?  Try a mix of both.  Either one is going to help you in the long run.  And, you might find that one excites you more than the other.  If that happens, then you can make adjustments.

#4: Having An Emergency Fund Is Good Enough

OK, so you saved $1,000 for an emergency fund.  You’re covered, right?  Wrong.

The fact is that even if you’ve built yourself a cushion, there is still work to do.  What if you have an emergency greater than $1,000?  How will you restore your fund if an actual emergency depletes your fund?  What if someone comes to you with an emergency of their own?

Be prepared.  Think ahead.

#5: Following Someone Else’s Budget Is Your Ticket To Success

A budget that works for someone else may not work for you.  Everybody has different circumstances and different needs.

Also, many people are at different stages of how they can handle a budget.  Someone who’s never used a budget should start simple. If they tried to use the budget template of someone that’s had one for twenty years, it probably won’t work.

Budgets come in all shapes and sizes.  There is no one size fits all.

#6: Focus On Cutting Spending To Save Money

This isn’t bad advice.  It’s actually really good advice.  However, it may not always be the best advice.

After all, the advice here only focuses on one side of the equation.  Spending.  This is great, but there’s also opportunity that comes by making more money.

Consider that we all have limited time in our lives in which we can focus on saving money.  If your time allows you to cut $1,000 per month in expenses, that’s great.  But what if you focused that time on earning more money instead?  If you could earn $2,000 per month with the same effort, then focusing on cutting expenses could actually be costing you $1,000 per month.

#7: The Stock Market Is Always Going To Go Up

It may seem like this is true given that it pretty much has for the last ten years.  But it doesn’t.  And it won’t.  Don’t believe people on CNBC that tell you that ‘this time it’s different’.  And that the market can go up forever.

It’s not and it won’t.

Everybody needs to keep an eye on the market and recognize that it’s not a one way only road.  The experts that tell you that it can only go up probably have a plan in place.  And when the market starts going down, they’ll have executed their plan before they go back on the air and talk about the downturn.  Trust me on this.

The fact is, they don’t care about your money.  They care about theirs.  Don’t get the two confused.

Readers, what advice have you heard that may need some corrections or clarifications?  What do you think about the items I mentioned?  Please let me know your thoughts in the comments below.  Thanks for reading.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Am I The Only Person A Bit Worried About The Economy?

The economy has been on a pretty good path for the last 8 years or so with slow but steadily improving job numbers, reduced unemployment, and a rising stock  market.  Many have argued that the slow growth is ‘bad’ but I argued a few years ago that slow growth actually provides a more stable foundation and a softer landing when things do start to turn.

I’m starting to wonder if that turn is starting to happen.  Moreover, I’m wondering if we’ve been used to things moving up for so long that people might be missing or ignoring the signs.

I’m not in outright panic mode but here are a few little things I’ve noticed that add up to a little bit of worry (Disclaimer: You should make absolutely no investment decisions based off of this article, which is 100% opinion).

Why I’m Worried About The Economy

  1. The market is in a trading range. The stock market has bounced up and down between around 1,800 and 2,100 for well over a year now.  Anybody that is ‘buy and hold’ is likely seeing little or no profits, with the only people making money are the ones that have learned to trade in this range.
  2. Job growth really seems to be slowing down. For most of the last eight years, we’ve seen month after month of new job creation.  For a long time, people wished it were growing faster, but now seem fairly settled in.  However, the numbers seem to be slowing down, with only 38,000 new jobs created last month, a pale comparison to the hundreds of thousands per month that were created on average even just a couple of years ago.
  3. Job growth numbers are being revised down.  When the job creation numbers are announced, they’re estimates.  The actual numbers come in a few weeks after, and revisions occur as more data becomes available.  In each of the last couple of months, the announced numbers ended up being revised down.  This doesn’t seem a good pattern to me.
  4. A top reason given for equity recovery is kind of BS (and kind of frightening). The first few weeks of 2016 saw a pretty steep correction in the markets, around 10% or thereabouts.  The recovery was swift, and mb-2015-06-chartlast week, the market largely seemed to even shake off the Brexit news.  This all seems well and good, but when I read a lot of articles, blog posts, or comments to the above, one main reason given for the growth in US equities is that people are selling equities in other areas of the world and moving them here.  That’s not a great endorsement.
  5. Another reason is even more scary. We’re in an extended period of ultra-low interest rates.  Debt has been financed on the cheap.  This has left cash on the sidelines that nobody really knows what to do with, so they buy stocks.  This almost seems to me like money is being invested simply because nobody knows what else to do with it.  Again, not exactly a reason high on my list when plotting out catalysts for growth.
  6. WARN Notices are on the rise.  Here in Michigan, when mass layoffs take place, the company must file advance notice with the State.  This info appears on their website specific to this information.  Last year, for the first six months of the year, there were 20 notices filed.  This year over the same period, there have been 32.

No Doomsday Predictions Here

I’m not sounding the alarm and not panicking.  I do think there are signs that the growth, as slow as it’s been, may be flat lining at best.  So far the markets have been shrugging off every bit of negative data that comes out.  Still, I don’t trust markets as any sort of leading indicators these days, not with a majority of shares traded each day being done by computers.

Readers, what do you think about the state of the economy right now? Where do you think it’s headed next?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

What Generation Took The Worst Of The Great Recession?

I was surprised the other day when my wife announced that she was a Millennial.  I originally disputed her on this, but then I looked it up and it turns out that she is right.  My error came in the fact that I had thought she was part of Generation Y.  Then I found out that this generation really doesn’t exist anymore!  Apparently, they’re now part of the Millennials.

The Active Generations In the Workforce

The first thing to do is identify the different generations.  Surely, we’ve all heard about them by now but so we’re all on the same page, and for purposes of my discussion, I’m using the following:

  • Baby Boomers – Born between 1946 and 1964, so anybody between the ages of 52 and 70.Should I stay or should I go?
  • Generation X – Born between 1964 and 1982, so anybody between the ages of 34 and 52
  • Millennials – Born between 1982 and TBD – so anybody younger than 34 but probably not older than 18

Now, a couple of notes.  In relation to the Millennials, the end date is probably still up in the air.  If history holds true where the generational gaps are roughly 18-20 years, then it will probably end up around 2000 before they cut off, but that’ll probably take a few years to shake out.

On the other end of the spectrum, there are of course people older than Baby Boomers, but quite honestly, you don’t hear much about them and they have largely (but not completely) exited the workforce.  Of course that generation is called The Silent Generation, so perhaps they’re just living up to their name. *LOL*

The Perception Between Generations

As I was doing my digging, I started reading through various articles, blog posts, and commentaries that have outlined the differences between the generations.  There are some common themes that I’m sure many are familiar with:

  • People in younger generations tend to blame those in the older generations for the problems of the world
  • People in the older generations often see those in the younger generations as entitled and lazy

I’ve always actually found these generalizations more humorous than anything else, because I’m going to bet that when the Boomers were the younger generation, the older generations at the time probably thought many of the same things, and conversely, I’ll bet that, as an example, when the Great Depression hit, there was plenty of blame assigned to the generation that was running the show by those younger.

In other words, the generational gap is not anything new.  It’s just the way of the world.

So What About The Recession?

It got me thinking that the Great Recession is a few years in our rear view mirror (though you can certainly feel a lot of residual impact), and I started thinking about who might argue that they took it worse.  I decided to jot down a few different impacts that we saw out of the recession, and came up with likely arguments that each group might use to show how they had it worse.

The Housing Market Collapse

  • Baby Boomers –  While many Boomers had built a lot of equity in their homes, as a group they had the biggest and most expensive homes, so the total amount of value lost when the bubble crashed was probably greater than with the other generations.
  • Generation X – Many had come to the age where home ownership was new and had grown quite a bit in the recent year.  They had less equity in their homes when the bubble burst, and were therefore the group most likely to go underwater or lose their homes.
  • Millennials – As a whole, the group here was not largely invested in home ownership, so while the losses weren’t as substantial as with other groups, it probably scared many away from considering home ownership, and other factors that I’ll get into later have made it increasingly difficult to consider home ownership at ages where previous generations entered the market.

Stock Market Declines

  • Baby Boomers.  Many Boomer’s were at or near retirement age.  While the safe strategy is to move further away from risky investments as you get close, the healthy markets had probably made it tempting to stay more invested.  Losses were in greater volume.  They also had a greater impact due to the fact that retirement savings were to be needed sooner.
  • Generation X.   Many in this generation who had started saving for retirement saw a lot of the savings wiped out.  This came at a time where the savings should be counted on to build a foundation for further growth.  Many Gen X’ers had to essentially start over and found themselves behind the curve that they were once in front of.  In addition, Gen X is the first generation where the shift away from a defined pension plan can’t be counted on.
  • Millennials.  While savings weren’t as high, what little the Millennials had built was largely wiped out.  Due to staggering student loan debt, many have not even been able to save for retirement.  The great stock market recovery has largely passed many by who are in this generation.

Job Losses and Stagnant Wage Growth

  • Baby Boomers.  Those Boomers who were still working and did not make it through likely found it harder to find jobs.  Senior level positions were often eliminated and not replaced.  Even if Boomers were willing to take a step backward into a more lower paying job, they were often overlooked.  Employers did not see them as staying long, so jobs largely dried up for this demographic.
  • Generation X. The Boomers that did keep their jobs basically made sure to stay in them.  That, coupled with the lack of new job creation, found many Gen X’ers stuck when they otherwise would have continued up the ladder.  This produced stagnant wages for people in their 30s and 40s.  These losses came at a time when expectations are that income grows significantly.  Even once wages started rising again, there was no catching up, so years of stagnant wages continue to impact earnings.
  • Millennials.  Job losses meant that new jobs weren’t being created.  New graduates who would normally enter the workforce found themselves unable to do so.   Even when employers started hiring again, they were able to be more selective, and looked for people that already have experience.  This makes finding the ‘first job’ that everybody needs a huge obstacle, even today.

So Who Took It Worst?

When you look at the areas above, it kind of boils down to three distinct themes between the generations:

  • Baby Boomers lost a lot of what they already had
  • Generation X lost a lot of what they were building toward
  • Millennials lost the opportunity to get started

Honestly, I think that each generation will lean toward saying that they took it worst.  That goes back to the whole generational gap premise that I noted above.  This gap naturally creates expected bias.  So, since I’m squarely in the middle of Generation X, I would likely put my vote in that group.  However,  when I remove my bias I can see the case that each would make.  I know that this is much more complex than I’ve been able to lay out.

Readers, what generation do you think suffered the most negative effects?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Why You Should Ignore The Doomsday Stock Market Predictions

The stock market has not been pretty as of late.  All three major US indexes are in or have at some point recently dropped into correction territory, which is noted as a 10% drop.  Some stock market predictions are coming out that are driven by pure fear.

The bulls that drove the stock market to more than double over the last few years have taken a break, and the bears have been more than happy to step in and finally be right.  However, I think that there are some who are way off the mark.

Is This 2008-2009 All Over Again?

There are many out there who will happily tell you that the stock market is headed for another crash like the one that happened in 2008-2009 when the markets lost over half their value in about an 18 month period.

They claim that the Fed artificially propped up stock prices over the past few years.  They warn that the market will return to those pre-prop levels.

Some claim that the global economy is so dire that the entire world is going to crash and burn any day!

Others just say that we’re in a bubble and it’s going to burst!

To all of that and any related thesis about an imminent market crash, I am very skeptical. Let me explain why.

Here are four reasons that I don’t think the market is headed for a crash.

There are no signs of a foreclosure crisis on the horizon

Remember the early 2000’s, when prices in just about every neighborhood were skyrocketing?  10% increases in mb-201312billscoinshome values a year?  No problem.  People could buy a home and be comfortable that they’d turn a profit in as little as a couple of months.  However, as we now know this was all built on a house of cards caused by bankers giving out loans that they should never have been doing.

Look around today.  While home prices have largely recovered, the volume isn’t there.  There’s less houses being sold.  This is a good thing.  It means people are actually buying and selling because they need to, which removes most of the speculation that drove the previous rise and fall.  While there are flippers out there, the practice is much less common and you have to actually know what you’re doing to make it work.

In other words, this is a fairly normal housing market that has solid footing, and while values could flatten or even decline, the crash in prices and spike in foreclosures seems very low risk.

Banks aren’t built on a muddy foundation

Remember the images of Lehman Brothers closing?  People walking out carrying boxes.  A giant building suddenly with no purpose.  A company that had handled and been responsible for trillions of dollars and in business for well over a century suddenly….gone?  We all saw the images and they hit home.  The fact is, while Lehman was the only major casualty of the giant banks, it could have gone further.

Luckily it didn’t.

When it all shook out, it turns out that very few banks were in great shape.  Most had gotten so consumed with the housing mess that it could have all come tumbling down.  Lehman wasn’t fortunate enough to get another chance, but many still did.

And the results show today.

Banks now must routinely go through stress tests, where a simulated economic disaster takes place, and banks must show that they have the liquidity and the financial strength to weather the storms.  When these stress tests first rolled out, very few banks passed.  Now, all the major banks have showed strength and routinely passed stress tests.

Is every bank guaranteed to survive some economic event that might happen? Of course not.  But, the industry as a whole is now must stronger and is not at risk of collapsing at any moment.

Unemployment numbers are solid

One argument that the mega-bears use is to point out that economic recovery is slowing.  This is true, but when you compare it to a few years ago, is this really a big surprise? We were just coming out of the biggest economic catstrophe in 80 years, so when things started going in the right direction, it was no surprise that things started picking up quickly.

Unemployment stands at just over 5% today.  That’s the lowest in years, and while employment gains are shrinking, I believe that it’s because of what the numbers show, that many people have jobs.

Many people will counter that argument by stating that the unemployment number is flawed, because many people simply dropped out of the workforce.  To me,  by empirical evidence alone, it’s pretty clear that more people are back to work these days.  I just don’t see the Facebook posts of people sitting at home looking for work.  I have automatic alerts about jobs in my area for my profession, and I see the number of opportunities getting bigger in number.  The current unemployment numbers don’t indicate a problem.

On top of that, I also think that the fact that unemployment has grown slowly and steadily over the last few years is a reason for strength right now.  Many past recoveries saw job numbers grow very quickly after a recession, only to see the large gains get undone at the first sign of trouble.  I believe in our current economy, employers have added jobs as they are truly needed, and the risk of them quickly unwinding the hires of the past few years is low.

Other countries do not drive us (though they can ride shotgun)

But….but…..China….and….Greece……yeah….they go down, we go down.

Isn’t that what many fear mongers have been preaching over the last year?  Every time China slows or Greece slows, the market goes into panic mode and the perma-bears pat themselves on the back in satisfaction.

Whatever.

The fact is that while we now have a global economy where things in other countries will impact us from a financial perspective, we still drive our own economy.

Let’s think about this?  The last time the situation in Greece came about, the stock market lost more value than the entire annual GDP of Greece!  Again, I understand the situation was no laughing matter, but perspective sometimes gets lost, and those who want to see doom and gloom will latch onto any little bit of news and make it seem like the entire country was going to basically fall into the ocean and all economic activity would cease.

Greece, China, and other countries will all have issues.  Will they impact us?  Sure.  But are they going to blow our economy out of the water?

Not likely.

So what does it all mean?

Am I here to tell you that the stock market shouldn’t have fallen?  No.  Am I hear to tell you that it won’t fall more?  No.  In fact, I could be completely wrong about everything I’ve said.  Maybe the market will tank.

But, I don’t think it will.  I’m keeping my portfolio aligned with that opinion (and that’s all it is).

I don’t see the perma-bulls getting hold anytime soon.  Will the Dow hit 20,000 this year?  Probably not (though wouldn’t that be nice!).  But will it go under 10,000 like many seem to love to call for?  I just don’t see it happening.

There will likely be a lot of volatility.  I think right now this is caused more by the market sensing fear and trying to shake out the weak hands.  Unfortunately, if this is true, a lot of people will get shaken out, suffering losses, and then they’ll miss out on the upside again.

That’s what the fat cats on Wall Street loves to do to the retail investor.

Before you make a big market move, make sure you look past whatever people are saying.  Everybody has their own agenda, and it may not match yours.  Understand for yourself what’s going on.  Make your decisions from there.

You might be right and you might be wrong, but at least you won’t be trusting someone else.  Because let’s face it, all those ‘someone elses’ don’t have the best interests in mind for your money despite what they say.

Readers, what do you think? Is the market headed for a crash or a rise or somewhere in between?  I’d love to hear your predictions and thoughts on what’s driving the market these days.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.