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Letter from a Father to His College-Bound Son

By JLP | August 29, 2014

This is great…

I heard this while listening to “The Book of Man” by William Bennett. It is a letter written by John D. Swain as his son headed off to Yale. It’s from 1912, but the advice is still good today. Common sense never goes out of style.

My oldest son headed off for Texas A&M and Blinn this week. This letter hit home.

Happy Friday!

My Dear Son:

I am writing a few things I meant to say to you when we took our last walk together, the day before you left for Yale. l intended to say them then and I will even confess that l shamelessly inveigled you into taking a stroll on the quiet street that l might rehearse a carefully prepared bit of Chesterfield up-to-date; but somehow I could not seem to begin,—and, after all, perhaps I can write what was in my mind more freely and plainly than l could have spoken it.

I think I had never realized before that I was getting old.

Of course I have known that my hair is causing your mother much solicitude. and that l am hopelessly wedded to my pince-nez while reading my daily paper, and at the opera; but in some incomprehensible way I had forgotten to associate these trifles with the encroachments of time. It was the sudden realization that you were about to become a Freshman in the college from which, as it seems to me, l but yesterday graduated, that “froze the genial current of my soul,” and spared you my paternal lecture.

Why, l can shut my eyes and still hear the Ivy Song, as we sang it that beautiful June morning; and yet but a few nights more and you will be locked in the deadly Rush on the same field where I triumphantly received two blackened eyes, and, l trust, gave many more!

Another thing, trifling in itself, opened my eyes to the fact of my advancing years. My son, my loyal and affectionate boy, some day it may be yours to know the pain, the unreasonable pain that comes over a man to know that between him and his boy, and his boy’s friends, an unseen but unassailable barrier has arisen, erected by no human agency; and to feel that while they may experience a vague respect and even curiosity to know what exists on your side of the barrier, you on your part would give all—wealth, position, influence, honor—to get back to theirs! All the world, clumsily or gracefully, is crawling over this barrier; but not one ever crawls back again!

You have ever seemed happy to be with me; you have worked with me, read and smoked with me, even played golf with me; but the subtle change in your attitude, the kindling of your eye when we met young men of your age, is the keenest pain I have ever known; yet one which, God knows! I would not reproach you with.

It explains what I used to see on my father’s face and did not understand.

For the tyranny of youth, my son, is the one tyranny which never has been, never can be overthrown. Nothing can displace it, nothing shake its power.

I usually beat you at golf, and occasionally at tennis; I suppose that if we were to spar together I might still make a respectable showing, and at least “save my face.” It avails no thing. I am on my side of the barrier, you on yours.

It seems but a year and a day since I tucked the ball under my arm and sped down the gridiron, sustained by the yells of my partisans; and if our game lacked the machine-like precision of the mass formations you are already somewhat familiar with, it was a good game, and we were good men, and all on the right side of the barrier!

So bear with me if l pause a moment and gaze back across this inevitable gulf into the pleasant land that lies behind me,—a picture evoked by your dawning college career.

I would not have you think me regretful, or melancholy. Life has been good to me—and every age has its gifts for the man who is willing to work for them and use them temperately. And nothing is more ungraceful, more ludicrous, than the spectacle of one who attempts to linger over the pleasures of an age he had outlived, and ignore the advantages of his own time of life.

Yet, as the years bring weakness, the mind persistently drifts back to the earlier periods of life, until the aged actually enter a phase we not inaptly name “second childhood,” from which Heaven forefend me!

I can still appreciate a pair of sparkling blue eyes, and I am not oblivious to the turn of a pretty shoulder; although I devoutly trust that my interest is now impersonal, and merely artistic . . .

Some fathers say to their sons upon the first home leaving,—”Beware of wine and women!” I do not.

If your home life has not taught you the virtues of a temperate, clean life, as I hope, then no words of mine can do it, and you must learn, as too many others have, from a bitter intimacy with its antithesis.

As to women, I never avoided them; I sought them out, from the time when, a red-cheeked youngster, I trudged to school beside a red-cheeked lassìe—asleep these many years in the little village lot where lie so many with whom I fought and played these many years gone by.

I have no advice to offer you on this great subject; its ethics are not taught by letter. If I have any regrets, they are not for your ear, nor any man’s. And if, of some women I have known, I cannot say that I lifted them up, at least of no woman can it be said that I thrust her down!

I ask of you no more than this and the guidance of your own heart; that, in the latter years, when you, too, pass over the barrier, you may not leave behind you shadows on the flower-decked meadows of your youth.

You will probably play cards in college; most men do,—I did. The gambling instinct in man is primordial. Kept under due bounds, if not useful, it is at least comparatively harmless. This is the very best that I or any honest man can say of it. I should be glad if you never cared to gamble; but l do not ask it. Assuming that you will, l do not insult you, and myself equally, by warning you against unfairness; to suppose you capable of cheating at cards is to suppose an impossibility. You could not do so without forfeiting the right ever to enter your home again. But some careless and insidious practices, not unknown in my day and class, savor to the upright mind of cheating, without always incurring its penalties.

To play with men whom you know cannot afford to lose, and who must either cheat or suffer privation; to play when you yourself must win your bet to square yourself; that is, when you do not reasonably see how you are going to raise the money to pay providing you lose,—this is a gambler’s chance to which no gentleman will ever expose his fellow players.

There is nothing heroic about these desperate casts of the die; one risks only the other fellow’s money. These practices I ask and expect you to avoid.

l ask nothing of you in the way of a declared position on religion. Your mother may have demanded more of you here,—entreated more; I cannot. I ask but this: that you will give earnest, serious consideration to the fact that we exist on this planet for a shockingly brief fraction of Eternity; that it behooves every man to diligently seek an answer to the great question,—Why am I here? And then, as best he can, to live up to the ideal enjoined by his answer. And if this carries you far, and if it leads you to embrace any of the great creeds of Christendom, this will be to your mother an unspeakable joy, and perhaps not less so to me; but it is a question which cannot be settled by the mere filial desire to please.

Last of all, while you are in college, be of it and support its every healthful activity.

I ask no academic honor your natural inclinations may not lead you to strive for; no physical supremacy your animal spirits may not instinctively reach out and grasp.

You will, I presume, make the fraternity I made, and, I hope, the societies; you will probably then learn that your father was not always a dignified, bearded man in pince-nez and frock coat, and that on his side of the barrier he cut not a few capers which, seen in the clear light of his summer, gain little grace. Yet, were he to live his life over again, he would cut the same, or worse.

Finally, if you make any of the teams, never quit. That is all the secret of success. Never quit!

Quitting, I like to believe, has not been a striking characteristic of our family, and it is not tolerated in our college.

If you can’t win the scholarship, fight it out to the end of the examination.

If you can’t win your race, at least finish—somewhere.

If your boat can’t win, at least keep pulling on your oar, even if your eye glazes and the taste of blood comes into your throat with every heave.

If you cannot make your five yards in football, keep bucking the line—never let up—if you can’t see, or hear, keep plugging ahead! Never quit! If you forget all else I have said, remember these two words, through all your life, and come success or failure, I shall proudly think of you as my own dear son.

And so, from the old home-life, farewell, and Godspeed!

Your Affectionate Father

Topics: Miscellaneous | No Comments »

The Light at the End of the Tunnel

By JLP | August 8, 2014

Nearly a year ago we found out we were moving. My wife accepted a new position that was too far for her to commute long-term.

Unfortunately, our old house was not market ready. We bought the house in 1999. It needed a lot of work then but we were low on funds. In fact, we didn’t do our first major renovation until the Fall of 2007. With that project, we took out a wall between the family room and kitchen, relocated a corner fireplace to a different part of the room, gutted the entire kitchen, installed new custom cabinets and bookcases, and tile throughout the kitchen, family room, and entry way. It totally remade that part of the house. But, we still had two-thirds of the house that needed attention.

That two-thirds was what kept us from being able to sell our house.

Long story short, we did get the house finished. It took me roughly 10 months to get it all done. All that hard work paid off. Here is a before and after picture of the front. The top picture was taken in 2005 right before we evacuated for Hurricane Rita. As you can see, Rita took out some trees.

Pritchard Palace I (Before and After) - small

Our Realtor put a sign in our yard on a Monday afternoon. Our listing went live that afternoon about 4:00. We received a call at around 5pm, asking to show the house at 5:30. We received another call at 6:30, asking to show the house at 7:15. We had two showings the first day and TWO offers the next morning. One of the buyers offered a little over our asking price. We accepted that offer and will be moving out next week.

We will be living in an apartment for a couple of months while we wait for the house we are buying to get finished. Here is a picture of the new house:

OLYMPUS DIGITAL CAMERA

We are looking forward to settling down in our new house. I’m looking forward to getting back to AFM on a consistent basis.

Topics: Miscellaneous | 4 Comments »

Quote of the Day from James Allen

By JLP | May 27, 2014

I couldn’t sleep last night, so I got up and did some reading. I read the book, As a Man Thinketh
by James Allen.

The following quote stood out to me:

Here is a man who is wretchedly poor. He is extremely anxious that his surroundings and home comforts should be improved, yet all the time he shirks his work, and considers he is justified in trying to deceive his employer on the ground of the insufficiency of his wages. Such a man does not understand the simplest rudiments of those principles which are the basis of true prosperity, and is not only totally unfitted to rise out of his wretchedness, but is actually attracting to himself a still deeper wretchedness by dwelling in, and acting out, indolent, deceptive, and unmanly thoughts.

This is a great little book. It can be downloaded for free from Amazon. Check it out.

Topics: Miscellaneous | 1 Comment »

70% of Americans Can’t Answer These Three Questions Correctly

By JLP | May 12, 2014

IF this is true, it’s very sad. According to Business Insider, 70% of Americans cannot answer all three of these questions correctly (not sure how they came up with that number, but we’ll go with it).

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?

A) more than $102
B) exactly $102
C) less than $102
D) do not know; refuse to answer

2. Imagine that the interest rate on your savings account is 1 percent per year and inflation is 2 percent per year. After one year, would you be able to buy

A) more than
B) exactly the same as
C) less than today with the money in this account
D) do not know; refuse to answer

3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

A) true
B) false
C) do not know; refuse to answer

I would hope all AFM readers could get these questions correct. I’m going to ask my kids when they get home from school. I suggest you do the same.

Topics: Basics | 7 Comments »

I Have Officially Been Banned from Pamela Yellen’s Blog

By JLP | May 6, 2014

There is no discussing facts Pamela Yellen. Here’s a copy of our back and forth for your entertainment:

JLP says:

April 28, 2014 at 5:49 pm

Why did you choose to use price returns for the S&P 500 and Dow Jones Industrial Averages instead of real returns, which would include dividends?

Pamela Yellen says:

May 1, 2014 at 12:28 pm

I DO discuss the impact of reinvested dividends right below my S&P 500 chart, as follows:

“Even when you include reinvesting dividends, the real purchasing power of your investment remains negative after 14 years! And this assumes you have no fees, commissions or taxes, which will take another big bite out of your savings.”

How did you manage to miss that, just like Allan Roth missed it? And if you and he missed something that obvious, what else did you both miss?

And then you have the nerve to compare me to The Beardstown Ladies on your post tearing me down on your blog on your AllFinancialMatters website? Based on my supposedly omitting something I clearly noted on BOTH my website and in my book?

I’ve come to expect that of Allan Roth. Hopefully you are a man of honor willing to admit when you are wrong.

You know, Mr. JLP, it’s easy to write whatever you want – regardless of the impact it might have on others – when you hide behind anonymity, as you do. I doubt you could take the crap and abuse I put up with on a daily basis for even one day if you used your real name.

JLP says:

May 1, 2014 at 1:38 pm

Thanks for the reply.

I still don’t understand why you just don’t use total returns for all your numbers. Why the difference? You clearly emphasize price returns over real returns, do you not.

Pamela says:

May 2, 2014 at 11:03 am

The reason is simple, JLP – I write my books for the consumer, not financial planners and investment advisors. Most consumers don’t know what the phrase “total return” means and would never be able to relate to the total return numbers of the S&P 500 index, or any other index.

When you turn on any market watch report or read the Wall Street Journal, are they reporting the total returns of the indexes? NO!!!!!!!! So, if I did, it would only confuse people!

Besides, the point I’m making is that I DID spell out that the chart in my book and on my website did NOT include reinvested dividends. Isn’t that what really matters?

But you never did address the issue I brought up in my statement: Even when you INCLUDE the dividends, the returns did not even keep up with inflation!!!!!!

Now riddle me this:

Why do you and Allan Roth both ignore the fact that the stock market returns you are talking about are BEFORE fees and commissions, BEFORE retirement account fees, and if investing in a tax-deferred account like a 401k or IRA, they are also BEFORE taxes?

Then you turn around and have the gall to compare them against the return of a Bank On Yourself- type dividend paying whole life policy, which is shown AFTER fees and commissions, AFTER account fees and AFTER taxes!!!!!!!!!

But, somehow that’s okay, right?

The numbers in all the policy examples in my book are bottom line numbers after ALL costs and taxes are deducted. You’d know that if you bothered to read my book. At least you admit you haven’t read it and don’t intend to. Roth either only read 5 pages of the book, or just ignored the rest because it didn’t support his arguments.

It is the height of intellectual dishonesty, but it’s the only way you can make your strategy look good. And the cherry on top of it is that those following YOUR advice get the pleasure of worrying about whether the next crash will wipe out 50% or more of their nest egg again, right before they planned to retire.

So, the real question is this: Are Allan Roth and Jeffrey Pritchard of AllFinancialMatters misleading their followers?

JLP says:

May 2, 2014 at 11:33 am

Actually, I ran the numbers using Vanguard’s S&P 500 Index Fund. I adjusted the numbers for the monthly CPI index. It turns out you would have eeked out a paltry gain of .38% per year. Since these are inflation-adjusted returns and they are positive, a person would have kept up with inflation…just barely. I’m not here to tell you that the last 14 years have been great. They have not. But, that is only part of the story.

Let’s say we look at these numbers from a DCA perspective. It would be very rare for a person to invest all their money on March 24, 2000, right at the VERY PEAK of the S&P 500 Index. However, let’s say a person started dollar-cost averaging into Vanguard’s S&P 500 Index Fund on that date and adding the same dollar amount at the end of every month. Adjusting for inflation (if you would like my numbers, let me know and I’ll email you my spreadsheet), they would have had a personal rate of return (using Excel’s XIRR function) of 4.98% over the last 14 years. Not great, but not bad either considering how bad the market was over those years.

Pamela says:

May 6, 2014 at 10:35 am

Well, I ran the numbers using the S&P 500 index numbers from Yahoo Finance and the inflation numbers from InflationData.com, rather than the numbers from a mutual fund, and there was no gain. And, given your demonstrated pattern of missing key data and reporting inaccurately, I am going to go with the numbers my team calculated, rather than yours. (But I can recommend a good reading comprehension course for you…)

But whether the gains beat inflation or not is interesting, but NOT the really critical issue, which you keep avoiding addressing. (I can’t imagine why…)

The KEY issue is that your numbers are BEFORE taxes and BEFORE all fees… and the Bank On Yourself numbers are AFTER all fees, commissions and taxes.

If you believe the taxes and fees are insignificant, you should be immediately stripped of any licenses you hold, as well as the “license” to run your AllFinancialMatters blog. (This is why most blogging isn’t writing. It’s graffiti with punctuation.)

Let’s say I give you the benefit of the doubt and assume you do know taxes and fees have an impact. Can you tell us how much a 1% annual fee over 30 years and a 25% effective tax bracket in retirement will reduce these returns?

I DO know the answer. Are you really as clueless as you appear?

Here’s a hint: According to the most recent 401k Averages Book, the average total plan cost for small plans is 1.46% per year per year. (FYI – IRA fees are usually higher.) Even the largest plans have fees that average 1%.

Fees that are added on, like 401(k) fees and mutual fund costs, compound AGAINST you. Deduct that 1.46% per year cost over a 30-year period. Or just run it with a 1% annual fee for 30 years.

Now let’s assume you’re fortunate enough to retire at “only” a 25% effective tax rate.

Tell me what’s left of your return?

Maybe 4.98% before fees and taxes “isn’t bad,” but it SUCKS after you account for fees and taxes.

Don’t just keep repeating yourself like a parrot! Run the numbers! And I DARE you to publish these comments IN FULL along with that result on your blog! (That’s assuming you could even calculate those numbers correctly – which is questionable.) In fact, I’ve noticed how you have conspicuously NOT included any of my comments on your blog. After all, they drive a hole as big as a Mack truck through your logic. And you’ve let the lies you originally published stand. Shame on you, Jeffrey Pritchard.

JLP says:

May 2, 2014 at 12:36 pm

Additionally, isn’t it dishonest to pick the absolute market top as your starting point?

Why not be fair and pick the absolute bottom since March 24, 2000, run the numbers again, and compare results?

Pamela says:

May 6, 2014 at 10:36 am

If I really wanted to slant the numbers, wouldn’t I have done the chart from a market top to a market bottom?

But I didn’t – I took it to another market high, ending the week my book got published. I suppose you would have me take it from a market bottom to a market top?

You have demonstrated that you are both dishonest and uneducable, Jeffrey Pritchard. I have a “3-strikes” rule on this blog – and you are now officially OUT. This conversation is over and you are now banned from this blog.

Topics: Blogging, Investing | 31 Comments »

Unemployment Rate Funny Business

By JLP | May 2, 2014

Did you hear the news?

Non-farm payrolls increased 288,000 in April and the unemployment rate “plummeted” .4% to 6.3%. See this Yahoo! story.

At the same time the employment participation rate fell .4% to 62.8%.

In case you don’t know, the participation rate “refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate.” (Source).

Here is what that rate has looked like since 1990:

Labor Participation Rate History (1990 - April 2014)

It’s dropped 2.9 percentage points since President Obama took office. It had dropped 1.5 percentage points during Bush’s presidency.

I understand some of the reason for this drop could be people retiring. Regardless, it makes the unemployment rate statistic almost meaningless.

While writing this post, I happened to see an AFL-CIO blog post about this news. They failed to even mention the labor participation rate. Why does this not surprise me?

Have a good weekend, everybody.

Topics: Economic Indicators, Economics | No Comments »

Is Pamela Yellen Misleading Her Followers?

By JLP | April 29, 2014

I have seen Pamela Yellen’s books before, but never really paid attention to them until I read this piece by Allan Roth.

Yellen is known for her “Bank on Yourself” books, a strategy that utilizes whole life insurance (UGH!).

Yellen is very outspoken when it comes to traditional financial advisors (on that we can agree). Perusing her blog, I found mentions of how misleading Wall Street is and such. Okay, fine.

BUT…

Ms. Yellen is also misleading. Take a look at the following graphic she posted on her website to see why (click on the graphic to see a larger version):

Your-Retirement-Plan-Slide2 - 420wide

Do you notice anything interesting in that graphic?

She left out dividends!

Is this an oversight or was it done to make her strategy look better? Either way, it doesn’t make her look good. If it was an oversight, it makes her look amateur. If it was done to make her strategy look better, it makes her look dishonest. She looks no better than the Beardstown Ladies did when they calculated their returns INCLUDING their contributions.

Regardless, there is NO REASON for this.

How big of a difference does leaving out dividends make? A lot.

I did some research and found that the S&P 500 Total Return Index closed at 2107.28 on March 24, 2000. The same index closed at 3127.87 on February 3, 2014. There are 5064 days (13.8644 years) between the two dates. If we divide 3127.87 by 2107.28, we get 1.4843. If we raise 1.4843 to 1/13.8644 and subtract 1, we get .0289 or 2.89% as the annualized rate of return between the two dates. No, it’s not good, but it’s a lot better than the .95% return that Yellen states in her chart.

I mentioned this in a couple of comments on her blog, but my comments went to moderation and I’m pretty sure they will end up in the trash. She is not interested in having a discussion. She is not interested in people who disagree with her. All of the comments I read were very positive about her strategy, which I find unbelievable and yes…dishonest. I pray her followers are more sophisticated than they appear.

DISCLAIMER: I have not read any of Yellen’s books. I do not want to spend money on them.

Topics: Index Funds, Investing | 11 Comments »

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