Ten for Tuesday, October 19, 2010

We’re cruising through October. I celebrated my 41st birthday last Friday. FORTY-ONE! Crazy if you ask me. My wife bought me the new Kindle along with a really cool cover with a built-in light. Very nice. I’m nearly through reading my first book on it and so far I really like it.

Enough about me. Now it’s time for this week’s Ten for Tuesday.

1. Here is Morningstar’s moderate ETF portfolio for retirees. I might dedicate an entire post to this one.

2. Kirk Kinder asks: Could the mortgage mess crater the economy?

3. 8 Crucial Money Lessons for Teens. I like this article.

4. While we’re on kids and money, check out this interview with Jean Chatzsky over at WalletBlog.

5. Larry Swedroe writes: Stocks rallied in September but many people missed it.

6. Is a master’s degree really worth it?

7. Thomas Sowell on government greed.

8. Kimberly Palmer has 5 best ways for young people to give back. Kimberly sent me an email last week to let me know about her new book, Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back*.

9. How fee disclosure will impact your 401(k).

10. 7 myths about Roth IRA conversions.

*Affiliate Link

A Money Conversation with My 6-Year Old Daughter

This morning while my 6-year old daughter was eating breakfast, I started asking her some questions about money just to see what she would say.

Me: What is money?

K: Gold and stuff.

Me: What do you do with money?

K: Buy stuff.

Me: Where do we get money?

K: At the bank.

Me: Where does the bank get money?

K: I don’t know.

Me: Well, you can’t just get money. You have to work for it, right?

K: Right.

Me: How much do you think we make each year as a family?

K: Ten.

Me: Ten what?

K: Dollars. That would be impressing.

Me: What do you want to be when you grow up?

K: Nurse.

Me: What does a nurse do?

K: Help kids. Help people when they don’t feel good.

Me: How much money do you think a nurse makes per year?

K: Ten dollars? Eight dollars?

Me: If you made $10 per year, what would you buy?

K: A toy for my baby.

Me: Who is the president?

K: Barack Obama.

Me: Who’s the Vice President?

K: I don’t know.

Me: How much does the President make?

K: $8 million.

Me: How much does a car cost?

K: $8 or ten hundred dollars.

As you can see, she likes the number 8 and 10. Haha. I love the way kids think.

The Best and Worst 30-Year Periods for Dollar-Cost Averaging Into the S&P 500 Index

I have to tell you a couple of things before you look at the graphic. First, the numbers DO NOT include inflation. Second, the numbers are based on the index and therefore DO NOT have fees and expenses deducted from the results. In other words, actual performance wouldn’t have been as good as the results shown. Third, I assumed $100 per month going into the index at the beginning of each month. Here are the rankings:

I highlighted the latest 30-year period in red to give you an idea of where it stood compared to other periods.

Now, here is the same information displayed in chronological order:

Looking at that graphic, it makes one thing clear: one year can make a huge difference! For instance, check out the 1978-2007 period, which would have grown to $330,842 over the 30 years. But, had your 30-year period started the next year, the account would have only grown to $180,713 due to 2008’s pathetic performance.

I think what we can take from this is that investing is a long-term adventure and the key to a successful investment plan is flexibility. If investment plan goes down right before retirement, you might consider working a couple of more years or cut back on your retirement goals. Don’t lose heart. Retirement can easily last 20 or more years, which will give you plenty of time to rebound as long as you are prudent.

One AFM Reader on My Equity-Indexed Annuity Post: You Just Don’t Understand

This comment was left this morning on my last equity-indexed annuity post:

You just don’t understand.

The insurance company doesn’t invest in the index—they buy options—they don’t rake in the difference. And there is no 2% management fee. Look at any insurance company’s investment portfolio; it will be comprised mostly of investment grade bonds–little if any stocks, mutual funds, etc. Most of the money goes to bonds to secure the guarantees. To compare an index annuity to a stock investment is wrong—compare it to a CD or other fixed investment where there is no risk of loss.

I’m pretty sure I understand. Sure, I don’t understand everything about EIAs but I know the basics. To say that an EIA based on the SP 500 Index shouldn’t be compared with that index is just crazy. Why? Because the sales materials talk about “getting the return of the S&P 500 Index without the risk.” In my opinion, it’s perfectly legitimate to compare an EIA based on the S&P 500 Index with the underlying index. To say it’s not is like saying you should only compare Diet Coke to water instead of Regular Coke.

The commenter also said that there is no 2% management fee. There’s a fee there somewhere. Insurance companies don’t do this stuff for free.

Here’s the deal: I wouldn’t be so anti-annuity if companies wouldn’t try to hide their motives behind 300-page prospectuses and make their products so confusing that it makes a side-by-side comparison nearly impossible.

AFM’s Blogoversary Giveaway: An Amazon Kindle!

To mark my sixth year as a blogger, I have decided to give away an Amazon Kindle (Wi-Fi) to one lucky AFM reader. If you’ve never used a Kindle (and you happen to win this one), you’re in for a treat. I bought my wife the 2nd generation Kindle last year. I have read a few books on it and really like it. We liked my wife’s Kindle so well that we bought my mom one for her birthday/Mother’s Day this year.

I wish I could just send one to BG, Stacey, Nasim, Miguel, Sam, and Mark (all names of people who read and comment frequently) as a way of saying thanks for their friendship. Unfortunately, I can’t…lol.

Anyway, if you would like a chance to win a Kindle, leave a comment below. I’ll randomly-select a winner and announce it on Friday morning. Please remember my two rules:

1. You must be a resident of the U.S. or Canada.


2. You can only enter one time.

Good luck.