Saw this video on facebook and thought I would share it here. Enjoy.

For those of you not familiar with Pamela Yellen, she is the author of the Bank on Yourself strategy. She has written a couple of books espousing the insurance based strategy. I haven’t read them. What I have to say in this blog post has nothing to do with the message of her books.

I can understand an insurance person not liking the stock market. I get it. When you sell products that are supposed to “reduce risk” you’re not going to be a fan of something like the stock market.

What I don’t like and can’t respect is a person who willingly misleads others by not telling the whole truth.

How does Ms. Yellen mislead her followers?

Take a look at the following snippet that was recently published on her blog:

Okay… so over the last nearly 16 years, since January 1, 2000, the S&P 500 (which represents the broad market) has had only a 2.15% average annual gain.

Did you guess that it was more than 2.15%? Most people do.

And coincidentally, that 2.15% per year return was cancelled out by the 2.19% average annual rate of inflation during that same time period! Oops!

So, was that return worth the risk you took? Was it worth your sleepless nights?

It Gets Worse, Because You Didn’t Actually Get that 2.15% Average Return – Here’s Why…

For starters, in order to participate in the returns of the S&P 500 (or any other index), you have to buy a financial product, like an S&P 500 Index mutual fund or an Exchange Traded Fund.

And those financial products have fees, typically totaling at least 1% per year.

So when you subtract that from the 2.15% annual return of the index, well… now you’re down to maybe 1.15%.

Which means, when you factor in inflation, you’ve actually been going backwards for the past 16 years. All that risk for so little reward.

Now take a look at the chart she included in her post:

Look closely. What did she conveniently leave out?

DIVIDENDS!

I have called her out on this before (NOTE: I have since been banned from leaving comments. Only people who agree with her are allowed to post comments on her blog.). She claims that talking about dividends would confuse the matter. Interesting. Dividends will confuse people, but using the price return for an index and then subtracting off another ONE PERCENT for management fees and then reducing it even more for inflation isn’t confusing?

Because I’m a nice guy, I will help Ms. Yellen out with the math. To be fair, I used the Vanguard S&P 500 Index Mutual Fund (VFINX) since it is an actual investment vehicle and not just an index. Its adjusted close on December 31, 1999 was $102. Its adjusted closing price on December 16, 2015 was $192.11. There were 15.96 years between the two dates, giving us an average annual rate of return of 4.05%. The math looks like this:

**[(192.11 ÷ 102)**

^{1/15.96}] – 1**[1.883431**

^{.062657}] – 1**1.040465 – 1**

**.040465 or 4.05%**

That’s roughly 3.5 TIMES the return Ms. Yellen posted on her blog!

I’ll be the first to admit that stock market returns have not been great during the 2000s, but they haven’t been nearly as bad as Ms. Yellen makes them out to be.

Not only that, most people have to dollar-cost-average into an investment. For kicks, I ran the numbers to see what the personal rate of return would be for someone who invested $100 each month into VFINX since December 31, 1999. Using the XIRR function in Excel, I found the personal rate of return to be 7.95%. This is due to the fact that the investments are made a little at a time over a long time horizon.

For someone who holds herself out as an “expert,” she should know better.

For your entertainment, here is my first post regarding Ms. Yellen’s tactics from 2014.

**UPDATE:** I just ran the numbers to reflect the last two down days (the DJIA has lost over 600 points on Thursday and Friday (12/17/2015 – 12/18/2015)). The personal rate of return for 12/31/1999 through 12/18/2015 is 7.44%.

I was looking at AFM from my iPad this morning and noticed several popup ads appearing.

This is both annoying and concerning because I don’t allow popup ads on AFM.

So…

This is either due to someone hacking my WordPress account or I have a malware on my iPad. I was seeing ads on my laptop, but I did a cleanup and haven’t seen any since then.

If you see anything unusual while browsing this blog, please let me know.

This is a video from 2014 in which Dave Ramsey addresses yet another question about his use of 12% as a benchmark rate of return.

Looking at the 30-year rolling return spreadsheet I put together, we can see that 12% or greater returns are possible. They occurred 19 out of 60 times.

When we take the average of all 60 of those 30-year annualized returns, we get 11.21%. You might think 11.21% is close enough, but over 30-years it’s a big difference. A person who received an 11.21% annualized return over 30 years would end up with a portfolio about 80% of the size of the person who achieved a 12% return.

What’s even more important to note is that these are index returns, NOT what a person could get in the real world. After fees (and don’t forget about inflation), the actual returns would most certainly be lower than published index returns.

I would respect Dave a lot more if he would come out and admit the error of his ways, but as you can tell from the above video, that’s not going to happen.

This is the last installment of S&P 500 Index Rolling Returns series.

The average 30-year rolling total return for the S&P 500 starting with 1926, is 2,478% or 11.21% annualized (geometric mean). There were several 30-year periods that had annual returns between 8% and 10%. Also, these numbers are not adjusted for the CPI, which would have a significant negative impact on the end results (perhaps another AFM series?).

Here are links to the other posts in this series:

S&P 500 Annual Returns 1926 – November 2015

S&P 500 5-Year Rolling Total Returns

S&P 500 10-Year Rolling Total Returns

S&P 500 20-Year Rolling Total Returns

Interesting story about a 30-year old Canadian man named Sean Cooper who paid off his $255,000 mortgage in a little over 3 years.

That fact is interesting enough. What makes it even more interesting is that people on social media are harassing him about it! In fact, the title of article starts out with “Love him or hate him?”

Why would anyone hate someone for paying off their mortgage early? Jealousy? The guy worked three jobs, didn’t take a vacation, lived in his basement while he rented the upper level of his house, and biked to work…FOR THREE YEARS!

I did find it funny that one of the commenters wrote, “And don’t forget the interest he has saved. Probably more than the original mortgage over 25 years.” Point taken, but what about the opportunity cost? Each dollar used to pay of the mortgage early, was a dollar that couldn’t be invested elsewhere. People rarely think about that.

Regardless, I congratulate this guy on setting a goal and sticking to it. Well done.

The big news in my former hometown is the fact that Blue Bell Ice Cream is finally going back on store shelves today after a nearly year-long absence due to the company’s listeria fiasco last year.

Personally, I’m not too interested in purchasing ice cream from a company that ignored health issues, but I digress.

Anyhow, one of the comments on one of the news stations I follow mentioned something about how some stores are now charging more for the ice cream than than they did before it was taken off the market. One woman added that stores were charging “more than it is worth.”

“More than it is worth”?

What does that mean?

Who decides what something is worth?

Customers do!

Although we may not like it, Blue Bell Ice Cream is worth what people will pay for it. We can’t blame retailers for wanting to profit from supply and demand. Besides, the act of raising prices will actually deter some people from buying more than they would at lower prices, leaving more for others. That way more people can get some Blue Bell Ice Cream.

Whether we like it or not, a price-driven economy rocks.