The September Effect

All things considered, I think it's safe to say nearly everyone is surprised by the relatively fast rebound of the stock market. Aside form a few dips here and there, the steep decline that began in February has been erased as the market crawled back to all-time highs.

Let's look at how the S&P 500 Index has performed:

• On February 2nd the S&P was up 4.81%...and then reality began to set in

• By March 23rd the index was down 30.75%

• After that, the market was volatile, but the direction was mostly up

• By September 2nd the index had regained all it had lost and up 10.84% YTD

• Since the 2nd, we've experienced declines and what I can only describe as an uncertain market

• As of September 16th the S&P 500 is up 5.53% YTD

On July 31st I gave you seven reasons why financial markets recovered while the economy continues to struggle. The same reasons still apply, but based on the decline at the beginning of this month I'm going to add another reason to the list: The September Effect.

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History Repeats Itself (Sometimes)

Historically, September is the month when the stock market's three leading indices, the Dow, the S&P 500, and the NASDAQ, usually perform the worst. There's even a name for this anomaly: the September Effect.

Market volatility or losses aren't guaranteed in September, but they occur with enough regularity that the phenomenon was noted in a research paper in 2013. If you're interested, and I'm sure you are, here's a link to Stock Market Performance: High and Low Months by Vichet Sum.

When looking at monthly returns in 70 countries over decades, September was the worst month measured by median return.

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Causes of the September Effect

I don't know why financial markets sometimes decline during the month of September, but I did some research and found some theories:

1. Seasonal behavior bias. With fall approaching, investors decide to change their portfolios. I guess this is kind of like putting away your summer clothes in favor of more weather-appropriate gear. 

2. Attention. Investors, returning from summer vacation, are finally ready to focus attention on their investment portfolios. This may translate to selling positions that have performed well over the past year. Of course the same investors could just as easily buy stocks in September, driving up demand and share prices.

3. Mutual funds selling large positions. Many mutual funds have their fiscal years end in September. During this time the funds may sell positions at a loss in order to reduce the size of their capital gain distributions.

4. One of the mysteries of life. This is what I used to tell my daughters whenever they asked a question I couldn't answer.

Out of all the theories listed above I like #4 the most. It also happens to be the explanation I came up with on my own. None of the other options seem like they would play a significant role in the anomaly.

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So what should you do? You probably know what comes next, but I'll repeat myself:

1. Focus on the things you can control.

2. Stick to your financial plan.

3. Wear a mask.

4. Wash your hands.

5. Get some exercise. Yes, every day.

6. Get a flu shot.

7. Limit your social media intake.

Investing Is Hard. Focus On What You Can Control.

When I say "investing is hard", what I really mean is that staying invested is hard. Especially when, as of this writing, the S&P 500 is down 26% year-to-date. Or when you’re bombarded by non-stop coronavirus-related news information from traditional and social media. Or when you can log in to your financial accounts anytime you want and watch the value decrease.

For investors of all ages, 2020 has been a difficult year - and we’re not even through the first quarter! It has been a long time since investors have seen such wild swings in financial markets. Since 2009, staying invested has been easy. Sure, there have been ups and downs, but mostly ups. And the market always goes up, right? Wrong, but after 10 years, and an absolutely stellar 2019, we've become accustomed to positive returns.

I could tell you to ignore the latest updates about the coronavirus pandemic, but you won’t do that. The virus has disrupted so many aspects of life that it’s natural to want to find out when it will end.

I could tell you to stop checking the value of your investments, but you won't do that. Technology has made it easy for us to quickly log in to our accounts or receive automated notifications of the balance, performance, etc.

I could tell you to ignore the daily news about the financial markets, but you won't do that. There's information everywhere and it's nearly impossible to avoid.

I could tell you not to listen to talking heads make predictions about what the markets will do, but you won't do that. Like daily news about financial markets, it's almost impossible to avoid hearing from someone who knows what's going to happen in the financial markets today, tomorrow, or next year. Here's a secret: No one can predict, at least not consistently, what's going to happen.

You're human, at least I think most of you are, which means you will track the latest news about the coronavirus, you will worry about your investments, you will be curious about the day-to-day changes in your account, and you will want to know what's going to happen to your accounts in the future.

Here’s something else you can do: Focus on what you can control.

You can control your own behavior. Spend quality time with loved ones. Try not to eat too much junk food. Make time in your day for some exercise. Read a book. Take a break, even an hour, from news, markets, noise, social media, commentary, opinions, and speculations and give yourself some space to think.

Finally, do one more thing: Since we’re in the Age of Coronavirus, your portfolio is like your face: Don’t touch it.

Keep Calm and Stick to Your Financial Plan

It has been a challenging week for investors.

As of Thursday, February 27, 2020, the three major U.S. stock indices are in negative territory year-to-date. Let's look at the damage:

• Dow Industrials -9.71%

• Nasdaq Composite -4.53%

• S&P 500 -7.80%

The cause? Fear and uncertainty over the global impact of the coronavirus.

The headlines are frightening, the posts on social media are scary (and probably riddled with incorrect information, but that's whole different issue), and the responses from elected officials are unsatisfactory.

For investors, your age, experience, and the total value of your portfolio are irrelevant because nearly 100% of you are thinking the same thing: This. Doesn't. Feel. Good.

Take a deep breath. And another.

It's all going to be okay.

How Have Other Diseases Affected Financial Markets?

This afternoon I spoke with a friend who works in public health. She's highly-educated and very smart. In other words, she knows what she's talking about when it comes to these types of things.

Part of our conversation focused on previous epidemics/pandemics and their affect on financial markets. The chart above might be difficult to read, so here's a link to a larger version. When viewing the larger chart, you can see a host of pandemics/epidemics and, most important, the macro trends in the S&P 500. However, it's impossible to see the micro trends, so I had to do some digging:

• During the height of the SARS virus back in 2003, the S&P 500 Index fell by 12.8%

• During the Zika virus, which occurred at the end of 2015 and in 2016, the market fell by 12.9%

My point is that during previous pandemics/epidemics the financial markets suffered some scary declines. The important takeaway is that markets recovered relatively quickly.

Some Perspective

If you want some statistics about the coronavirus check out this site, which aggregates statistics from health agencies across the world. Some numbers to consider:
 

• At the time of this writing, there were 83,379 coronavirus cases and 2,858 deaths

• Every year an estimated 290,000 to 650,000 people die in the world due to complications from seasonal flu viruses

I'm not attempting to minimize the threat posed by the coronavirus or the deaths that have occurred. I simply want to give you some perspective about this issue.

So, get a flu shot, wash your hands, eat well, exercise regularly, and don't forget to breathe.

If you're still nervous about the coronavirus and how it might affect global markets and your portfolio, that's okay. Just keep the big picture in mind when thinking about this week's declines:

One Last Thought

In the movie Braveheart, there's a scene where English heavy cavalry are bearing down on William Wallace, played by Mel Gibson, and his army of Scottish warriors. It would be truly terrifying to have heavy cavalry charging at you. In the movie, Wallace/Gibson tells his soldiers to "HOLD".

I recommend you do the same when it comes to investing. Keep calm and stick to your financial plan.

Discover & share this Braveheart GIF with everyone you know. GIPHY is how you search, share, discover, and create GIFs.

Listening / Playing / Reading / Watching

Here's what has my attention this week:

• Pandemic by Z-Man Games. This is a great cooperative board game where up to four players try to keep the world safe from outbreaks and pandemics.

• Outbreak starring Dustin Hoffman and Morgan Freeman.

Knowing When To Let Go

Sticking With It...Or Not

A couple of weeks ago, a friend asked if I had watched the most recent season of House of Cards. I responded that I had stopped watching partway through the 5th season because I was no longer enjoying it. My friend and his wife were slogging through the final season, determined to finish it even though they too weren't enjoying it.

Over the past few years, I have become much less likely to continue reading or listening to books, watching TV shows or movies, or playing video games that I wasn't enjoying. Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari? Set it aside after it kept putting me to sleep. The Walking Dead? Stopped watching after season seven shambled on what seemed like forever. Far Cry 5? Deleted from my PlayStation 4 after growing tired of boring fetch quests.

As I've gotten older I've become more conscious, and more protective of, my free time. Call it the Marie Kondo Effect: Why waste precious time on something that doesn't bring me joy?

We all love instant gratification, but not everything has to bring you instant or constant joy. Sometimes challenging things are worth it. The Count of Monte Cristo is one of my all-time favorite books, but parts of it drag. Still totally worth it.

Buying...Or Selling

I know this will shock you, but I often relate things to investing. The decision about whether or not to stick with something that no longer brings us joy is similar to what happens when we invest. Sometimes we hold on for too long; sometimes not long enough.

Hopefully, the decision to buy or sell an investment isn't based on emotion, such as joy. Instead, the decision should be made based on logic and quantitative measures, such as price, expenses, and the need for diversification.

Sadly, as I've written previously, investing is hard. Humans are emotional creatures and we're often lousy at making rational decisions. We buy high and sell low. We take on more risk than we need to.

My advice: Try to reserve your emotional decisions when choosing things like books, TV shows, movies, and video games. And, if you've given something a fair chance and you aren't enjoying it, don't be afraid to let it go. Unless it's The Count of Monte Cristo. You need to stick with that book.

When it comes to investing, check your emotions at the door.

Ten Years!

It's difficult to believe that ten years ago this month the S&P 500 finally hit the bottom. Check out the chart below to see how it has bounced back.

Reading / Watching / Playing

Here's what has my attention right now:

• Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou. The rise and fall of Theranos and its CEO, Elizabeth Holmes, is a fascinating tale of corporate fraud, greed, and the insanity that is Silicon Valley. I'm about halfway through the book and it is fantastic. Highly recommended!

• Marvel's Spider-Man on the PlayStation 4. The thrill of swinging through the man-made canyons of Manhattan never gets old. I'm no fan of spiders, but maybe getting bitten by one that's radioactive wouldn't be so bad. PS: There's a cameo by the late Stan Lee that is simply perfect.

Residual Self-Image and Personal Spending

Enter the Matrix

Last Friday, I decided it was time to introduce my oldest daughter to The Matrix. I'm happy to report (a) she liked it and (b) the film, which was released way back in 1999 (!), has held up pretty well. Yes, the computers and cell phones featured in the movie are dated, but the subjects of A.I., virtual reality, and control over the population are still relevant today.

Residual Self-Image

After Neo (Keanu Reeves) has been freed from The Matrix, brought into the real world and his physical body healed, his liberators have to show him what The Matrix is. In this scene, Neo is jacked into a computer program and his avatar's appearance, complete with hair, stylish '90s era clothing, and a distinct lack of creepy ports embedded in his body. In other words, very different from his real-world self.

It's no surprise that this change confuses Neo. Morpheus (Laurence Fishburne) explains "your appearance now is what we call residual self-image. It is the mental projection of your digital self."

I find the concept of residual self-image applies to the real world. For example, I recently turned 43, but I don't feel all that different from when I was 30. More importantly, my residual self-image, my mental projection of myself, is that of a younger version of me.

I'm pretty sure this happens to most people. As long as we don't have any major health issues, we assume we still look like we did 5, 10, or even 15 years ago. That is, of course, until we look at pictures of ourselves from those periods and we are surprised at how young we look or how much weight we've gained (or lost, depending on the individual).

Residual Personal Spending

In my experience, a phenomenon similar to residual self-image occurs with our spending. For lack of a better name, I'll call this Residual Personal Spending, which is how you think you spend, not how you actually spend.

Here's how it works: We go about our daily routines, spending money as we always have. Sometimes this goes on for years.

One day, we decide to take the red pill. Either we begin tracking our spending on our own or we hire a financial planner who forces us to find out where our money is going.  Suddenly, we discover our residual personal spending is all wrong. We spend how much on dining out? We couldn't possibly spend that much on groceries!

Take the Red Pill

Do yourself a favor, and take the red pill - start tracking your spending. Technology makes this easy. You can use Mint to aggregate your bank and credit card transactions. Or, if you're like me and hate advertising, use an inexpensive service such as Tiller to aggregate your transactions in an easy-to-manage spreadsheet. Disclaimer: I have no affiliation with either of those services.

To paraphrase Morpheus: This is your last chance. After this, there is no turning back. You take the blue pill, the story ends. You wake up in your bed, go about your day, continue to spend as you always have, and believe whatever you want to. You take the red pill, you begin tracking your spending, and I show you how deep the rabbit hole goes - how much you actually spend on dining out and groceries. Remember, all I'm offering is the truth. Nothing more.

Mr. Market's Wild Ride

The Short Version

Greetings! I know you're busy, so I'm going to summarize this post for you:

1. Calm down.
2. Markets go up and down. It's normal.
3. Stop watching and/or listening to what passes for financial news on networks such as Bloomberg, CNBC, Fox Business, etc.
4. No one knows why markets rise and fall. Anyone who claims to know is a liar.
5. Stick to your financial plan. Don't have one? Get one. You don't have to be rich to work with a financial planner.

The Parable of Mr. Market

The recent ups and downs in financial markets have seriously rattled investors. Well, the downs rattled investors because no one likes the downs. It's not fun watching one's retirement savings or other investments drop in value. Unfortunately, we're stuck with declines because markets don't always go up. Markets are made by people and people are irrational, greedy, and prone to panic.

The market fluctuations and the subsequent flurry of news, analyses, and pundit-speak made me recall the parable of Mr. Market, which Waren Buffett shared with investors in his 1987 letter to shareholders of Berkshire Hathaway. Below, you'll find an excerpt of that letter, which includes the parable of Mr. Market. I used bold text to emphasize what I believe to be the most important takeaway of Mr. Buffet's story. Have at it.

"Ben Graham, my friend, and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest in him.

Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game. As they say in poker, “If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.”

Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging, and betas. Their interest in such matters is understandable since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?

The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben's Mr. Market concept firmly in mind."

Perspective

Last week, after the markets started bouncing around, I shared a chart of the Dow Jones Industrial Average index on my personal Facebook feed. I believe it's worth sharing again.

The Dow Jones Industrial Average index over the last 10 years.

I don't want to come across as cold and uncaring. Fluctuations in markets can have serious financial consequences depending on how much you have saved as well as the stage of life you're in. The best thing you can do is create - and stick to - a financial plan because no one can predict why or when markets will rise and fall.

Listening / Playing / Reading / Watching

Here's what has my attention right now:

1. Neverwhere, by Neil Gaiman. In a previous post, I mentioned how much I enjoyed listening to Gaiman's American Gods. I highly recommend Neverwhere, too. Bonus: Gaiman narrates the audiobook edition and his performance is fantastic. I would listen to him narrate the phone book. If phone books were still a thing.
2. Morning Star, by Pierce Brown. I'm pretty sure Brown's series is considered YA (young adult) literature and I don't care. Morning Star, which is book three in the Red Rising trilogy, is just plain fun. If Greek mythology, The Hunger Games, the Harry Potter series, and Game of Thrones had a baby, it would be the Red Rising trilogy.

The Old Versus the New

“There are new gods growing in America, clinging to growing knots of belief: gods of credit card and freeway, of Internet and telephone, of radio and hospital and television, gods of plastic and of beeper and of neon. Proud gods, fat and foolish creatures, puffed up with their own newness and importance. They are aware of us, they fear us, and they hate us," said Odin. "You are fooling yourselves if you believe otherwise.” - Neil Gaiman, American Gods

The Audiobook

Earlier this week, I finished an amazing audiobook that captured my imagination: American Gods: The Tenth Anniversary Edition (A Full Cast Production)*. The story takes place in modern America and features gods, both old and new, living among us mere mortals. The Old Gods, including Odin, Loki, and Easter, were brought to America centuries ago and are now weak, scraping by on the fringes of society. Their power and influence have faded because they have been forgotten - but that doesn't mean they are completely powerless. On the other side, the New Gods, such as Media, the Internet, and Television, have grown powerful as humanity places its faith in a new order. There's quite a bit more to the story, but I won't ruin it for anyone who decides to read it. And you really should.

*If you decide to listen to the audiobook I highly recommend this version because the cast does an excellent job bringing the story to life.

New

After finishing the audiobook I couldn't stop thinking about some of the ideas I had heard, especially the idea of the old, forgotten gods and the young, new gods.

As I was reading the Wall Street Journal, I took note of the companies making headlines: Amazon, Apple, Facebook, Netflix, Tesla, and Twitter, among others. What do these companies have in common? All were founded less than 45 years ago. Fun Facts: Founded in 1976, Apple is the oldest of the bunch, which makes it 41 years old - the same age as me.

My point is that these are relatively new companies and they garner quite a bit of attention from their customers/users, the media, and investors. I started to think of these companies as the New Gods.

Old

If the companies listed above are the New Gods, which companies are the Old Gods? I tried to come up with a list of companies that had been replaced or forgotten:

• Amazon is where we buy books and pretty much everything else these days, so Barnes & Noble and Sears seemed like good choices.
• Apple makes more than just computers now, but IBM seems like a good fit.
• Despite its production problems, Tesla continues to be the carmaker everyone talks about. I think Ford and GM are the obvious choices.
• Facebook and Twitter are social networking platforms as well as sources of news, both real and fake. All of the old media companies fit into this category.

Why bother comparing all of these companies? Because it illustrates how investors behave. Naturally, we want to use, read about, and invest in the latest and greatest things/companies. This means we often forget about the old, yet still powerful, companies, sometimes with dire circumstances. Remember the 2000 - 2002 dot-com bubble? Pets.com, which was considered one of the Next Big Things, didn't survive.

Here's another good example of why it's important to focus less on the New: In 2010 Warren Buffett's Berkshire Hathaway completed the purchase of BNSF Railway, a nearly 160-year-old company. At the time, I remember reporters saying Buffett was crazy for buying a railroad. It's an old industry! How boring! Of course, once Buffett explained why he bought a railroad everyone thought he was a genius.

The Takeaway: Don't chase the latest and greatest things - especially when it comes to investing. Stick with boring, tried and true investments. Better yet, keep it simple and buy a low-cost index fund.

One More Thing

The day after I finished listening to the American Gods audiobook I started writing down ideas that would eventually become this post. As I fleshed out my ideas I turned to that all-knowing deity The Internet for more information. To my surprise, the search revealed a similar piece written by Josh Brown earlier this year. Curses!

Fortunately for me, Brown's piece goes in a different direction than mine. Anyway, please let the record show that:

1. I swear I came up the idea for my post before I stumbled across Josh Brown's blog, and
2. Brown's post is excellent and you should read it.

Listening / Playing / Reading / Watching

Here's what has my attention right now:

• Leonardo da Vinci by Walter Isaacson. How can anyone pass up a biography of da Vinci??
• Hash Power - A Documentary on Blockchains and Cryptocurrencies by Patrick O'Shaughnessy on his podcast, Invest Like the Best. The Invest Like the Best podcast quickly became one of my favorites after listening to just a couple episodes. The Hash Power series is a good place to start if you want to learn about cryptocurrencies.
• Mindhunter on Netflix. Have you ever wondered how the FBI figured out how to profile and catch serial killers? If so, there might be something wrong with you.
• Wolfenstein 2: The New Colossus. This game provides an alternate version of history, one where Germany won World War II and America is controlled by Nazis. The developer, MachineGames, released this game at a time when America actually has a real Nazi/white supremacist problem. The social commentary in the game is fantastic.

You Know You Need a Financial Advisor When...

There are a few sure-fire signs that you need a financial advisor in your life. Whether you are just starting out in your first job or on the other side of retirement, there are financial considerations at each stage of life that a financial advisor can help you understand and navigate.

If you haven’t hired a financial advisor, but are wondering if now is the right time, there are a few signs that may indicate now may be the right time to start.

·      You’re not sure you’re saving enough for retirement. Even if you are saving for retirement, it may not be enough to support your needs and lifestyle in retirement. You don’t want to be in retirement and then find out that you didn’t save enough. Better to consult with a financial advisor earlier in your life to put you on a plan that will provide you with enough income to support your retirement lifestyle.

·      You don’t know where all your money is going. If you wind up scratching your head every month wondering where all your hard earned income has gone, it’s time to work with a financial advisor. A financial advisor can help you understand your current spending habits and even help you adjust them to better align with your values and your goals.

·      You’re not sure how to make a big financial decision. Whether you’re getting married, buying a home, or considering long-term health care options, a financial advisor can help you navigate large financial decisions. There are large financial decisions we face at every stage of our life and you don’t need to make them in a vacuum. A financial advisor will help you understand your financial options so that you can make the best possible decision for you and your specific situation.

·      You don’t know what your finances are working toward. A financial advisor is going to help you set financial goals for your present and your future. He or she works with you so that you can align your money with your values and help you create the life you want to live.

·      You live beyond your means. Financial advisors are not just for people with a ton of investible assets anymore. Besides, even the highest wage earners can find themselves living beyond their means, too. If you find that you are regularly outspending your income each month, even when you have plenty of income coming in, it’s time to hire a financial advisor.

If you identified with any of these signs, I encourage you to consider working with a financial advisor. There is a lot of value a financial advisor can bring to your financial life beyond retirement planning and investment management. 

Equifax Data Breach - What You Should Do Next

What Happened?

• Equifax, the credit-tracking and rating company, revealed it suffered a massive data breach on July 29th of this year
• Approximately 143 million U.S. consumers were affected

Why Should I Be Upset?

• Having your sensitive personal information leaked is bad enough, but Equifax failed to report the hack until Thursday, September 7th - more than a month after the breach actually occurred
• To make matters worse, executives at Equifax sold millions of dollars in company shares in early August, which isn't at all shady
• Equifax's response to the breach was laughable, and not in a good way:
  • Initially, the website www.equifaxsecurity2017.com/, which was created to notify consumers of the hack, had numerous problems, which made it appear as if the site was a phishing threat
  • Immediately following disclosure of the breach, security codes were displayed on the main Equifax site
  • The PIN generated when a consumer initiates a security freeze appeared not to be random but generated in such a way that hackers could still determine the consumer's identity (this has since been fixed)

What Can I Do?

• Find out if your information was included in the breach by visiting this site created by Equifax and clicking "Potential Impact"
• Sign up for the free 12-month credit file monitoring and identity theft protection provided by Equifax
  • Note 1: Initially, the terms and conditions of this service required anyone who enrolled to give up the right to sue the company, but Equifax has since stated that specific clause would not apply to the data breach)
  • Note 2: You do not have to sign up for the monitoring service, it's simply an option
• Check your credit reports from the three main reporting agencies, Equifax, Experian, and TransUnion by visiting www.annualcreditreport.com.
  • You are allowed to obtain one free report annually from each of the three companies
  • There are numerous websites willing to charge you for a credit report, so make sure you use the one authorized by Federal law
• Place a credit freeze on your files
  • You can find out more about this service by visiting the Federal Trade Commission website
  • Equifax is providing the credit freeze service free of charge, but Experian and TransUnion are charging consumers $10 - $15 for the privilege (I'll give you three guesses how I feel about paying for this service to a company that's managing my sensitive data)
• If you don't want to lock-down your credit with a credit freeze, you can initiate a fraud alert, which allows creditors to get a copy of your credit report as long as they take steps to verify your identity
• Review your bank and credit card statements for any transactions you don't recognize
• Improve your passwords
  • I understand how difficult it is to remember dozens of passwords, so I recommend using a password manager, such as LastPass
  • Even better, enable two-factor authentication for your most important websites
• When using public wi-fi networks don't visit websites that require sensitive information
  • If you must use a public network, use a virtual private network (VPN), such as VPN Unlimted, which will encrypt the traffic between you and the internet

Listening / Reading / Watching

Here's what has my attention right now:

• I'm still working on last week's books!

The Frugal Traveler or: How to Get Lodging in Europe for Less Than $10/Day

Travel On the Cheap

This week, I returned from a European vacation with my family. I recognize a trip like this isn't a typical family vacation because of the costs associated with airfare, lodging, food, and museums/entertainment. We are fortunate that we were able to make the trip.

Being the Frugal Family that we are, we always do our best to minimize expenses.

When it comes to airfare, my wife has a knack for finding low-cost airfare using websites that track prices. I still don't know how she has the patience to scour all of the travel sites, but she consistently finds great deals.

As for food, it's relatively easy to keep your costs in check. For example, rather than eating out at every meal, you can eat breakfast in your hotel/apartment or pack a picnic lunch/dinner. This was especially easy while in France where you can make a delicious, inexpensive meal out of a baguette, cheese, salami, fruit, and of course, wine. 

In true Frugal Planner fashion, my wife and I found a way to significantly decrease the cost of lodging - while making new friends. There is some work involved, but it's not too much of a hassle.

The Home Exchange

Services such as Airbnb have made it easy to find alternatives to traditional hotels. Allow me to add another service you should consider: GuestToGuest.

GuestToGuest facilitates reciprocal and non-reciprocal exchanges:

• In a reciprocal exchange, you stay at the home of a person who comes to yours. What's nice is that the exchanges don't have to be at the same time or for the same duration. It's up to the users to negotiate the terms.
• In a non-reciprocal exchange, you use GuestPoints to stay in another person's home. You can earn GuestPoints by hosting other members. The only downside of hosting guests is that you need to clean before and after the guests visit. I don't think this is a dealbreaker.

We've hosted guests from the United States, France, Argentina, and Spain. In some cases, we've stayed in our house while guests stayed in a spare bedroom. These types of exchanges enable us to make new friends and give the girls opportunities to learn about other countries. At other times, guests have stayed in our home while we were out of town. I like this because it means there's someone watching over the house for us - and watering our garden. Fortunately, we've never had any problems. In addition, GuestToGuest requires a security deposit and insurance during the stay.

An Example

Here's an example of how GuestToGuest worked during our recent trip to Paris. Please note that while I list the GuestPoints we paid, I don't factor the points into the overall out-of-pocket cost of lodging because we earned the GuestPoints by hosting people at our house.

Paris:

• We stayed in Paris from 8/8 until 8/16.
• GuestPoints paid = 824
• Our security deposit was €400 ($477), of which we paid a 3.5% commission to GuestToGuest = €14 ($17).
• Insurance was €4/night = €32 ($38)
• Total out of pocket in Paris = €46 ($55)

Lyon:

• We stayed in Lyon from 8/16 until 8/20.
• GuestPoints paid = 896
• Our security deposit was €1000 ($1,193), of which we paid a 3.5% commission to GuestToGuest = €35 ($42).
• Insurance was €4/night = €16 ($19)
• Total out of pocket in Lyon = €51 ($61)

Our total out-of-pocket cost for lodging in France was $116, or $9.67 per day.

Listening / Reading / Watching

Here's what has my attention right now:

• The XY Planning Network's 2017 Conference. I'm currently in Dallas, TX for the XY Planning Network's annual conference. I look forward to learning a lot while catching up with my fellow financial planners.
• The Punch Escrow, by Tal M. Klein. Looking for a smart, funny summer beach read? Check out this sci-fi book about nanotechnology, teleportation, and a future where corporations control everything.
• Game of Thrones, season seven finale. Yes, there have been some serious lapses in logic this season. For example, how quickly can ravens and dragons fly across Westeros? Have the White Walkers been wandering aimlessly beyond the wall throughout the entire series? Setting aside those and many other issues, this season has been great. Now if only George R.R. Martin would hurry up and finish writing The Winds of Winter.

Practicing What I Preach

This week, while having lunch with a friend and mentor, I questioned whether or not I really need to join a gym (and thus pay a monthly membership fee). Could I not continue my DIY approach? After all, I trained for and competed in triathlons for 10 years, so I'm pretty sure I know what I'm doing.

Thanks to an astute observation from my mentor, I had an epiphany: Although I consistently encourage people to invest in themselves, I wasn't following my own advice.

I believe it's almost always worth the expense to invest in, among other things, education, fitness, and of course financial planning. Okay, I'm definitely biased when it comes to financial planning because that's how I make a living. But it's worth it, I swear!

Sure, You Can Do It Yourself. But Will You?

With few exceptions, there's very little we can't do ourselves. For example, I had no idea how to perform maintenance on the commercial-grade plumbing hardware in our house, but after watching a few videos on YouTube I was ready to tackle the job. Unfortunately, I don't think I should try that if I need surgery.

I certainly could continue to workout on my own and save the cost of the monthly gym membership, but I know I'll work harder and have better results if I actually go to a gym. I believe the same thing applies to financial planning. Sure, you can do it yourself. But will you?

My point is that sometimes we can't do it ourselves. Sometimes the outcome is better when we have help. Clint Eastwood (as Dirty Harry) once said, "A man's got to know his limitations." Know your limitations and don't be afraid to invest in help when you need it.

Listening / Reading / Watching

Here's what has my attention right now:

• Alien: Covenant. As a major sci-fi nerd and superfan of most installments in the Alien series, I can't wait to see this tonight.
• Quiet: The Power of Introverts in a World That Can't Stop Talking, by Susan Cain. As an introvert, I think it's fitting that I listen to this with earbuds firmly planted in my ears. That way I can keep to myself and not risk having someone try to talk to me.
• Master of None, season two on Netflix. If you haven't watched season one, do it now. Comedian Aziz Ansari's series is excellent.

Here's What Happens When You Take a Financial Planner to Las Vegas

Viva Las Vegas

Over the long MLK weekend, I went to Las Vegas with my wife and six of our friends. They all joked that hanging out with a financial planner in Sin City wasn't going to be any fun. There's some truth to that because Vegas really isn't the ideal getaway for an introverted financial planner who doesn't like to gamble and whose idea of a fun evening involves a good book and lights out at 10PM.

I may not have gambled while in Vegas, but that doesn't mean I'm a total stick-in-the-mud: I stayed up well past my bedtime every night. I like living on the edge.

The eight of us did the usual things people do in Vegas: Eat, drink, go to shows, and gamble. Fortunately, everyone took a sensible approach when it came to gambling. Each couple agreed upon an amount of money they could use, and possibly lose, while gambling. No one raided their bank account with the goal of winning back money lost at the blackjack table.

Gambling Versus Investing

While in Vegas one of my friends asked a good question: "Isn't investing in the stock market the same as gambling at a casino?"

The short answer: No, these activities are not the same.

The long answer: I understand why one might think investing and gambling are essentially the same. On the surface, both activities entail putting your hard-earned cash at riskofa gain (yay!) or a loss (boo!). Of course, there are some key differences that may not be obvious. Let's look at what differentiates these activities:

Investing

• Ownership: When you buy shares of an index fund or a company, you own part of a company or companies. Gambling gives you nothing - except maybe some free drinks.
• Potential long-term income: When you own shares of a company that pays dividends, you'll have an income stream for as long as you own the shares. Gambling might pay off, but it's usually a one-time event.
• Appreciation: The value of those shares you purchased might become more valuable over time. Even better, you can then sell the shares and enjoy a gain.

Gambling

• Odds: Casino operators won't be in business very long if they allow gamblers to win too often. That's why the house has an edge in all of the games they offer. Some odds are better than others, but they're never in your favor.
• Luck: Whether it's a roll of the dice or the hand you're dealt, gambling features an element of luck. There's an element of that when it comes to investing, too. The difference is that investors can educate themselves through research prior to buying shares of a company. There's no way to research what will happen with the next pull of the slot machine.

There is one important thing both investors and gamblers need to do: Understand the rules of the game (or investment). I've seen many people take action without understanding what they were getting themselves into. The only thing they accomplished was giving their money away.

Finally, I should add one more thing before being called Debbie Downer: I understand many people enjoy gambling. I don't judge people on the activities they engage in. I love playing video games and I'm sure many people consider that a waste of time and money. To each his (or her) own.

Stray Observations About Las Vegas

1. Outside of Bourbon Street in New Orleans, I've never seen a place that allowed (and encouraged!) drinking as much as Las Vegas.
2. I'm amazed that it's 2017 and casinos still employ scantily clad women as dancers around the gambling tables.
3. Casinos are extremely good at getting people to part with their money. It's kind of awesome to watch how well they do this.
4. I haven't been around so many smokers in years. I felt like scrubbing my lungs after spending time in the casinos.

Listening / Reading / Watching

Here's what has my attention right now:

• 1984 by George Orwell. Believe it or not, I never got around to reading this classic book. It seems like a good time to do so.

Despite My Best Efforts, I Ended Up Writing About New Year's Resolutions

A Topic No One Has Ever Written About

I hope you had a nice Holiday Season! For my first post of 2017, I decided to write about something new, something fascinating.

Then I decided to save that topic for another week.

On to the New Year's resolutions!

Mine

In previous years I've done a reasonably good job of sticking with my New Year's resolutions. I believe it's important to set some goals for yourself. Even better, share your resolutions with family or friends so there's someone that can hold you accountable. Okay, here are my resolutions for 2017:

1. Hold monthly financial check-ins with my wife. Okay, maybe this isn't the most exciting or romantic goal, but we've done this in previous years and it's been instrumental to our financial success as well as the health of our marriage.
2. Slowly increase my exercise regimen now that my lower back injury has healed. At this time, I have no desire to resume the punishing routine required to participate in triathlons. Ten years of that was enough. Now I'll settle for keeping off excess weight and remaining healthy.
3. Ditch my phone/tablet/laptop when the girls get home from school. Recently, my brother-in-law helped set up a charging station in our house. I'd like to drop my tech gear there for the few short hours I have with the girls before they have to go to bed. Out of sight, out of mind. Email and work can wait until after they're asleep.

Yours?

So what are your New Year's resolutions? If you're a client, I'd love it if you shared yours with me. Feel free to share even if you're not a client!

I hope you have a great year. Good luck sticking with your resolutions!

Listening / Reading / Watching

Here's what has my attention right now:

• The Smartest Places on Earth: Why Rustbelts Are the Emerging Hotspots of Global Innovation by Antoine van Agtmael and Fred Bakker. The authors take a look at parts of the US that have been written off. They conclude these regions may be actually leading the way forward for new products and technologies.
• Catching up on issues of Wired magazine that have been sitting on my nightstand.

Everyone Is Irrational

Irrational Behavior

As a father of two young children, I think I know a thing or two about irrational behavior. For example, morning might begin with my youngest daughter requesting cereal for breakfast. But it has to be in the orange bowl because the white bowl, which is a perfectly good bowl, just isn't going to cut it. Oh, and she needs the spoon with the rounded stem. Because it's her lucky spoon. Never mind that it's dirty and currently in the dishwasher.

What I've described above may explain why, upon arriving at my office, I've come close to using the wrong dispenser on several occasions. That's because the fruit-infused water and beer dispensers are right next to one another. I've received some strange looks from my office mates when almost pouring myself a beer before 9AM. I think it's just my brain working against me after a sometimes exasperating, yet hilarious, morning routine.

Okay, back to this week's topic.

But First, A Quote

As I mentioned last week, I'm listening to The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis. The book contains a great quote from psychologist Amos Tversky as he's speaking with an economist:

"All your economic models are premised on people being smart and rational, and yet all the people you know are idiots."

Why I Love That Quote

While in school, I learned about many models and theories that never really made sense to me. This was especially true of the time spent in business school. I'd often listen to a professor's lecture and become frustrated by anything that assumed people or investors were rational.

Here are two examples:

• Rational Choice Theory assumes individuals always make prudent and logical decisions. I don't know about you, but I don't know anyone that's rational all the time. That includes me!
• The Efficient Market Hypothesis (EMH) states that it's impossible to beat the market because stock market efficiency causes existing share prices to always reflect all relevant information. The problem I have is the EMH assumes:
  • All information is available to the market and its participants,
  • Stocks follow a random walk, and
  • All investors are rational.

I think we can agree all investors aren't rational.

Why Create Economic Theories or Models?

Despite my frustration with many economic models and theories, I believe there's value in trying to understand how our markets function and why people behave the way they do. It's just important to compare the theoretical models against the real world.

Change Your Password!

In case you missed it, Yahoo! was hacked again this week. Take a few minutes to change your password if you haven't already done so.

Listening / Reading / Watching

Here's the only thing that matters this week:

• I am going to see Rogue One tonight.

That Time I Got Sick After Visiting Iceland

I'm Healthy!

A few weeks ago, my lovely wife surprised me with a trip to Iceland. She wanted us to get away for a long weekend to belatedly celebrate my 40th birthday.

Unfortunately, I picked up some sort of Mutant Icelandic Super Bug at the tail end of our trip. It knocked me out for three weeks! My weekly posts had to be put on hold while I focused on my health.

Frugal? Yeah, Not Right Now

In case you didn't already know it, I'm a frugal guy. However, while I was sick my frugality was temporarily put on the back burner; I would have paid just about anything to feel like myself again. Special tea that's supposed to shorten the duration of colds and the flu? Sure. Six different kinds of Mucinex? One of them has to work, right? An outrageously expensive inhaler? Done.

I'm sure I'm not the only person to temporarily turn off personal spending limits. In fact, I can think of at least two other events that trigger a similar reaction: Vacations and holidays. Of course, the latter is especially relevant right now.

What's the point of this observation? It's certainly not that spending is bad - especially when it's related to your health. I believe it's important to recognize the things that affect our behavior so we can (hopefully) make fewer financial mistakes in the future.

Back to Iceland

Despite catching the Icelandic Plague, our time in Iceland was incredible. The country is beautiful yet sparsely populated. Most of the 330,000+ residents live in Reykjavik, where we spent much of our time.

Nerd that I am, I frequently regaled Heidi with stories of Iceland's financial struggles. In case you missed it, Iceland was one of the countries hardest hit by the 2008 financial crisis. Three of the country's major privately-owned banks went into default and eventually collapsed.

Here's the interesting thing: The banks were allowed to fail. This makes me wonder what would have happened if the US had responded the same way during the financial crisis.

So how has Iceland fared since the crisis? Surprisingly well. Unemployment is low (~4%), GDP growth is an impressive 4%, and tourism has boomed. We saw signs of development all over Reykjavik. Construction cranes dotted the skyline. Major infrastructure projects have been completed to take advantage of the country's natural thermal and hydro resources. An impressive 99% of Iceland's energy needs are now produced by these renewable sources of energy.

Okay, I'm done geeking out over Iceland's fascinating financial history. Go visit the country if you can. Just watch out for their Super Bugs.

Listening / Reading / Watching

Here are the things that had my attention this week:

• The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis. I'm a big fan of Michael Lewis's work. If you haven't read The Big Short or Flash Boys, add them to your reading list right now. His latest book focuses on the work of two psychologists whose work created the field of behavioral economics.
• The Devil in the White City by Erik Larson. It's difficult to believe this is a work of non-fiction. Larson details how a serial killer used the 1893 World's Fair to lure victims to their death. It's a heartwarming tale.