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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, 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.


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 »

Is the Market Overvalued? Interesting Thoughts from Fortune’s John Cassidy

By JLP | April 2, 2014

I found this tidbit from John Cassidy’s latest column in Fortune to be interesting:

“A couple of months ago I mentioned the cyclically adjusted price/earnings (CAPE) ratio, which was flashing amber. Another warning sign is provided by the so-called Q ratio, which compares the market value of corporate assets with their replacement cost, and which was developed by the late James Tobin, a Yale economist. As of March 6, when the S&P 500 closed at 1,877, the Q ratio was indicating that the market was overvalued by 76%, says Andrew Smithers, a London-based analyst who helped popularize the measure. The only times the market has been more overvalued with the late 1920s in the late 1990s.”

My wife and I are still in the accumulation phase and I’m not one to time to try to time the market. If the market comes crashing down, I simply won’t look at the 401(K) balance for a few months. Ignorance is bliss.

Topics: 401(k), Investing, Retirement Planning | No Comments »

America’s Future Doom and Gloom or Overblown?

By JLP | March 14, 2014

I have been (slowly) working my way through a book titled “Changing Texas – Implications of Addressing or Ignoring the Texas Challenge.” It’s a pretty dry read.

I came across this part that I wanted to share with you [brackets] mine:

1. The U.S. workforce is becoming more racially and ethnically diverse;

2. The racial and ethnic groups that are less well educated (e.g., Hispanics) are the fastest growing due to higher rates of natural increase and [illegal?] immigration;

3. The increasing rate of retirement of “baby boomers”–the most highly educated generation in United States history–is expected to lead to a drop in the average level of education of the U.S. workforce now and for the next two decades;

4. If these current population trends continue and states do not improve the education levels and graduation rates from high school and college for all racial and ethnic groups, the knowledge and skill levels of the U.S. workforce will decline;

5. If the knowledge and skill levels of the workforce decline, occupational achievement will be lower;

6. If occupational achievement declines, the income of the U.S. residents will decline;

7. If the levels of knowledge and skills of the U.S. workforce decline, more jobs will be exported off-shore;

8. As jobs are exported off-shore and U.S. residents’ incomes decline, the taxes paid by U.S. residents will decline; and

9. As taxes decline, revenue for state and federal support of state and federal of state and federal services will decline, including support for education.

This chain of interrelationships is dependent on the validity of three key demographic and socioeconomic trends:

1. The rate of increase in minority populations with reduced socioeconomic resource bases;

2. The relationship between the demographic characteristics of populations and the education level of the population; and

3. The relationships between education and income (both personal and household) and between education and poverty and other types of socioeconomic change.

Will jobs be exported or will people from other countries come to live and work in the U.S.? I have also read that basby boomers will most likely work longer because so many of them haven’t saved enough for retirement.

Either way, I do not like the sound of a less education society. I cannot see this as being a good thing.

Topics: Economics | 2 Comments »

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