Tag: security

A Wall Street Fairy Tale

Is the sky really falling?

chicken

Chicken Little lived in Storybook Land. He had a nice government job working for the King, Mr. T. Chicken Little wasn’t born rich, but he was smart and read a lot. He wanted to be rich someday like his cousin Goose Golden-Eggs. Money just seemed to drop out of Goose. She left a pile of wealth everywhere she sat. It didn’t seem fair that some people were  born rich and had more money than brains, but no one ever said life was fair. Chicken had feathered his nest with Index Funds from the Stock Market. He hoped to have a very nice nest egg when he retired. He always paid attention to what was happening with The Stock Market.

The Stock Market was co-owned  by Mr. Bull and Mr. Bear. No one had seen Mr. Bear in years, not since 2009. No one liked it when Mr. Bear ran the market, but thankfully he only did so about once every seven years, and he never ran it for very long. Mr. Bull did a much better job running the Stock Market and always managed to clean up the mess left by Mr. Bear. He even had a new friend keeping him company on Wall Street,  Fearless Girl who just showed up one day and has hung around with Mr. Bull ever since.

Now Chicken Little was always running home from work each day, because he always wanted to see what the Talking Heads on TV had to say. Everyone in Storybook land watched different Talking Heads. There were many of them and you could always find one you liked. The problem was that they all said something different, so you had to be really careful which ones you listened to. Some of them said some very bad and dumb things, and if you listened to them too much, you grew very sad and jaded, like The Old Witch.

The Old Witch liked to tell everyone how  smart she was because she was very old, and she watched the Talking Heads all day long, so she knew everything. As Chicken Little was passing her home, she waved him over.

“Hi Chicken, did  you hear what my favorite Talking Heads said today?”

“No Witch, I was busy working all day so I could have more money to feather my nest.”

“They said Mr. T the King is an idiot, his son is retarded, and he’s going to destroy the world.”

Chicken Little was aghast! He couldn’t believe anyone would say such terrible things, much less listen to them, so he decided to quickly change the subject.

“Say Witch, you’re old and know everything. What’s the best thing to do with your money? I leave ten percent of  my money in  The Stock Market with Mr. Bull and he takes great care of it.”

“The Stock Market?!” she yelled. “You’d have to be crazy to leave money in the Stock Market. Do you remember the big crash of 1929? Humpty Dumpty lost everything  in the Market and leapt to his death because he was so depressed. Only idiots put their money in the Stock Market. I hide all my extra cash in my mattress,  it’s safer than a bank, and I own a nice house, it’s made of Candy and Chocolate.”

Chicken Little didn’t own a house, he rented a nice apartment with a great view. He eyed her home skeptically. “Isn’t candy bad for you? I heard it makes you fat and gives you diabetes.”

 The Old Witch scowled and gave him an angry look.

“What do you know? You’re not as old as I am, and you’re not as smart. I watch the Talking Heads all day. Chocolate comes from cocoa, which is a bean.  Candy is made with sugar which come from sugarcane. So both come from plants and therefore they are both vegetables and vegetables are good for you. Now scat! I’m busy, my favorite TV show is about to start.”

Chicken Little walked away shaking his head. Next he came to the house of the Pigs.

Practical Pig owned a house made of Gold Bricks. He and his brother Fifer were in the yard gardening as Chicken walked past. He called to them.

“Hey Pigs! I was talking with the Old Witch about money, what do you do with yours?”

“All my money is invested in real estate and precious metals.” replied Practical Pig pointing at his house made of gold bricks. Fifer said nothing, he just smiled. 

Practical was older and smarter than his brother Fifer. Fifer lived with his brother and slept on his couch. Fifer  used to own a house made of sticks. It was built on a foundation of sand, and financed with a ‘Ninja’ loan. It was a variable rate mortgage which inflated quickly. Fifer eventually lost his house of sticks when the housing bubble bust, so now he had to live with his brother.

“Isn’t gold and real estate expensive?” asked Chicken.

“It can be, but everyone has to live somewhere, and gold had never been worthless so both are great investments.”  Practical replied.

Chicken alternated looks between Practical Pig and his homeless brother Fifer.

“Say Practical, do you ever hear from your other brother Fiddler?”

“Oh yeah. I spoke to him on the phone this morning. He just moved into a huge expensive mansion financed by BitCoin and Ethereum. It’s totally built out of Ones and Zeros. I worry about him, some day he’ll be sleeping on my couch too.”

Chicken waved goodbye at the brothers and hurried home to his maintenance-free apartment.

The first thing he did when he got home was to turn on the News to listen to what the Talking Heads were saying about the day’s business news. They were all screaming that the sky was falling because the market plunged nearly 666 points and that it was probably the end of the world.

Chicken Little was so shocked by the news that he passed out!

After he recovered from the shock, he reviewed the various news clips to see why the market fell.

Some of the Talking Heads blamed Mr. T the King  for constantly letting his pet blue birds The Tweets fly free,  and said that he didn’t play well with others. Some of the Talking Heads said the Market Fell because The Wicked Witch of the West was the rightful ruler of Storybook Land and the throne had been stolen from her. A few others blamed it on The Man in the Moon and yelled at the sky. A few blamed the Russians. A few said they had ‘no idea why, it was a mystery.’ A few said it fell because the market fluctuates and it’ll bounce back. Uncle Warren the Wise Wizard of Wall Street said he was going to buy lots of cheap stocks first thing in the morning.  Little Jack Horner  sat in the corner eating his pie. The Cheshire Cat smiled until he faded away,  leaving only his grin. Everyone seemed to react to the news differently.

In the end, Chicken Little checked that his nest was still intact, saw that his index stocks were still up for the year, and discovered that despite what some of the Talking Heads claimed, everything was going to be just fine. He decided to listen to Uncle Warren and pick up a few bargains at the Stock Market, and knew that one day, he too would grow up to be a Wizard of Wall Street.

The End

Fairy Tales were a traditional way to entertain young impressionable minds while at the same time conveying a moral lesson. Even Jesus Christ occasionally turned to parables when trying to covey complex ideas to the crowd. There are lots of individuals who have difficulty understanding  how the economy, the stock market, and even personal finances work.  Throw in politics and religion and people get real confused quite fast.

February 2nd, 2018 marked one of the largest drops of the Dow Jones Industrial Average  since 2009. The thousand point plunge from the prior week’s high probably scared the novice investor to death. It’s not as bad as some of the ‘experts’ are claiming. Investing in stocks still results in far greater returns on investment than real estate, precious metals, or even the dangerous new gimmick, crypto-currencies like BitCoin. I’d stay far away from that last one, when that bubble pops, it’s going to burst loud and hard!

The bottom line is that there are many factors which impact our day to day lives, and just as many pundits, cynics, and fools with opinions. Everyone has an opinion.  It can become quite the task to filter out the many voices and distill all the information to refine a pure source.  What do singers , athletes, and movie stars really know when they speak on a topic? For every one celebrity with an actual college degree, there are at least a hundred who barely even graduated  high school.  Check your sources, check your information, and review your facts before making a decision which could potentially ruin your future happiness. Just because everyone around you is telling you what you want to hear doesn’t mean it’s the truth. You just might be in an echo chamber surrounded by sycophants.   Tread carefully.  As always, I wish you happiness and success!    

WTF? (What’s the FICO?)

Understanding the 3 digit number that rules your finances.

The acronym  FICO stands for Fair Isaac Corporation.  FICO is a data analytics company which was founded in 1956 by Bill Fair and Earl Isaac.  Using data gleaned from your credit history, FICO generates a score between 300 and 850 which aids creditors in assessing your credit worthiness.  The higher your  score, the better the credit offers and terms you receive. Any number under 629 is a poor score. Fair to average ranges from 630 to 689. Good is between 690 and 719. Anything above a 720 is considered excellent. The scores reflect credit payment patterns over time with more emphasis on recent information. Scores automatically improve, as one’s overall credit picture gets better. That means showing a historical pattern of paying your bills on time and using credit conservatively.

In order to calculate a score, your credit report must contain recent enough info on which to base the number. The minimum amount of information needed is at least one account opened for at least six months or longer, and which has been reported to the credit bureau in the last six months. Adding to the confusion, there are three credit bureaus, Equifax, TransUnion, and Experian. The credit history reports from each of these companies may contain different information, and thus could result in three different FICO scores depending on the information contained within.   

Never assume each credit bureau has your identical credit history. They receive only the information supplied them by lenders, collection agencies, and court records. One bureau may have more up-to-date information than another because some lenders report credit information to the credit bureaus at different times,  resulting in discrepancies. The credit bureaus may record, display or store the same information in different ways. You should review your credit history at least once a year, and you are entitled to ONE free annual report from EACH of the three agencies. You can request a copy from AnnualCreditReport.com this is the ONLY real site to check, don’t be fooled by look-a-likes or fake phishing sites that want to steal your identity.  

Keep in mind the following:

Not all credit scores are “FICO” scores. Some credit agencies may use an internal scoring system of their own creation. FICO scores are ONLY generated by the FICO corporation. Over 90% of major creditors use FICO scores to determine your credit-worthiness.

Your FICO score will change over time.  Just because you had an 810 three months ago doesn’t mean it’s that today. This is caused by changes in your credit history report. Each time your  debt ratio on  your credit cards change, your score can change. A major purchase that brings your card close to its limit will drop your score until the balances snap back to somewhere near $0.00  and the new lower balance is reported.

Some creditors report your credit info very frequently to the credit bureau while others may only do so on a quarterly basis, and this can change your numbers as well.

ficocomposit

How is the FICO number determined?

You FICO score is based on the following:

35%- Payment History

30%- Outstanding Debt

15%- Total Credit History

10%- New Credit Requests

10%- Credit Type Diversity

If you want to raise your score, you need to pay your bills on time, every time, keep your balances low, and apply for new credit only when necessary. NO EXCEPTIONS, NO EXCUSES.  Late payments are reported to the credit agencies, as well as your total balances, and new credit requests. Adding negative information to your credit history will cause your FICO score to drop  like a rock! Any negative information will stay on your history for up to seven years. It is imperative that you do everything possible to avoid anything which will compromise your good credit.

Here are some suggested tips to follow:

DO:

  • Pay your bills on time! I can’t stress this enough .
  • IF you mess up and miss a payment, get current and stay current! The longer you pay your bills on time, the better your score. Every time you mess up, you sabotage everything you’ve accomplished to that point. SO DON’T MESS UP!  
  • If you are so deep in debt that you can’t make ends meet, contact your creditors and seek help from a legitimate credit counseling service. You need to get your debt under control before you can fix it. You can’t run or hide from your creditors. It will make things worse. Trust me. I speak from experience. Re-establish your credit history if you have had problems. It will take time, but it can be done. I did it, you can too!
  • Keep balances low on credit cards, (under 10%), and avoid carrying a balance.
  • Pay off debt rather than move it around.
  • Open new accounts only when needed.
  • Check your credit history once a year.

DON’T:

  • Close unused credit cards, it will lower your score.
  • Open new credit cards that you do not need. This could lower your score.

I know all of the above information can seem a bit daunting. If you’re overextended in your financial circumstances because ‘life happened’, I get it. It’s no fun having collection companies calling your home and harassing you because THEY want THEIR money.  I’ve had poor credit.  Now I have excellent credit.  I can tell you from experience that life is great when you have all your bills paid on time, are debt free, have cash in your wallet, money in the bank, and a FICO score over 750. It took time and persistence for me to accomplish this. It didn’t get fixed overnight, but it did get fixed because I stuck to the plan. I tell you this not to brag about my wealth and success, but to encourage you to follow my lead. I did it, and you can too. I believe in you. As always I wish you  happiness and success!

Will you be left out in the cold?

Security in your golden years is up to you!

” Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler,  yet it stores its provisions in summer and gathers its food at harvest..” Proverbs 6:6-8 NIV

Grasshopper

The Grasshopper and the Ant  is one of Aesop’s Fables and draws its origin from Proverbs 6:6-8 in the Bible. Aesop is thought to have been a Greek slave who lived about 600 B.C.  The fable describes how a hungry grasshopper begs for food from an ant when winter comes and is refused. The situation sums up moral lessons about the virtues of hard work and planning for the future.

Cradle to grave– A Ponzi Scheme

Charles Ponzi was an Italian swindler who ran a fraudulent investment  con operation where returns for older investors were funded through revenue paid by new investors. This is by and large how Social Security works.

 The Social Security Act was signed into law by President Roosevelt on August 14, 1935. In addition to several provisions for general welfare, the new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement. The Social Security Administration will deny that it is a Ponzi scheme, even going into detail as to why it’s not a Ponzi scheme in one of its publications and again on its website. Social Security is part of a government attempt to provide ‘cradle to grave’ social welfare programs to provide for citizens of the USA. Relying on Social Security to support you in your old age is a terrible idea. It exists solely to provide funds for people too lazy to set aside funds for their retirement, and it will barely be able to cover basic needs. I have personally witnessed my mother and her sisters struggle and fail to make ends meet with Social Security. My mother would have been homeless without me bridging the shortfall left by her $450 a month SSA check the last five years of her life. My last living aunt is 76 and gets a meager $1060 per month.  She is constantly falling behind on the rent. She HAS been homeless, and will probably be again in the near future after alienating most of the family.   

“In this present crisis, government is not the solution to our problem; government is the problem.” – President Ronald Reagan

Your retirement is your business, not the governments!

The 401(k) provision was created in the 1978 Tax Revenue Act,  but went largely unnoticed for two years until Ted Benna, noticed that the tax clause in section 401, subsection (k), did not preclude pre-tax salary reduction when it stipulated that cash or deferred-bonus plans qualified for tax deferral.  It was a creative loophole that eventually led to rise of the 401(k) Plan as a major wealth-generating retirement tool.  Ronald Reagan had made personal saving through tax-deferred individual retirement accounts, or IRAs, a component of his campaign and presidency. (He went on to sign this new interpretation into tax law after he won the 1980 election. ) Payroll deductions for IRAs were allowed in 1981.

In February of 2005 Republican President George W. Bush outlined a major initiative to reform Social Security which included partial privatization of the system, personal Social Security accounts, and options to permit Americans to divert a portion of their Social Security tax (FICA) into secured investments.  In essence, he wanted to wean the populace off the teat of Social Security and move them into more financially lucrative personal IRAs. Democrats opposed the proposal and after gaining control of both houses following the 2006 Midterm elections, effectively killed the plan for the remainder of Bush’s term in office.  The Democrats created the failure that is Social Security, and they will fight to keep us under its yoke. The path to fiscal independence is paved with the gold bricks of IRAs and 401(k) plans. Countless fortunes have been made by investing in the stock market. No one have ever become wealthy by collecting monthly SSA checks.

IRA vs. 401(k): What’s the difference?  

Both 401(K) plans and IRAs (Individual Retirement Accounts) allow you to save money in the stock market through tax deferred contributions. Anyone with a job can contribute money to an IRA. You can only contribute money to a 401(k) or similar retirement plan if one is offered by your place of employment. In many cases employers will offer matching contributions. In other words: FREE MONEY. You should commit to contributing 10% of your salary to these plans as soon as you are eligible to enroll, and you should always be sure to contribute enough to  max out the employer match. Again, it’s FREE MONEY! There is no funding match for IRAs. As of January 2018, the maximum employee contribution for 401(k) and similar plans is $18,500. The max for an IRA is $5,500, but if you’re 50 or older you can add another $1000 to that as a catch-up fund.

 Retirement plans offered by employers include:

  • 401(k) plan – a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.
  • 403(b) plan – also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. The basic difference is that a 403b is used by nonprofit companies, religious groups, school districts, and governmental organizations. The law allows these organizations to be exempt from certain administrative processes that apply to 401k plans. In other words, administrative costs for a 403b are lower.
  • 457 plan –  a kind of defined contribution retirement plan available to state and local public employees, but can also be offered by certain nonprofit organizations. They work much the same way as 401(k) plans.
  • TSP Plan – Federal employees and members of the uniformed services participate in the Thrift Savings Plan (TSP), a retirement savings plan similar to 401(k) plans offered to private sector employees

Both IRAs and 401(k) plans may be available as ROTHs. Roth IRAs and now the new Roth 401(k)s are named for Delaware Senator William Roth and were established by the Taxpayer Relief Act of 1997. There is no pre-tax savings on these, they are funded by after- taxed income, but they grow tax free.  

IRAs give you the largest number of personal investment choices, they are quite similar to a brokerage fund. 401(k)s tend to limit your investment choices to up to as many as twenty different funds, which may be passive index funds, or actively managed funds which will have periodic fund maintenance fees associated with them which will eat away at your returns.   

EXAMPLE: My company TSP Plan offers 6 funds:

G Fund: Government Securities Investment Fund (no risk bonds)

F Fund: Fixed Income Index Investment Fund – is invested in a separate account that is managed to track the Bloomberg Barclays U.S. Aggregate Bond Index

C Fund: Common Stock Index Investment Fund – tracks the Standard &Poor’s 500 (S&P 500) Stock Index

S Fund: Small Cap Stock Index Investment Fund – a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market (TSM) Index.

I Fund: International Stock Index Investment Fund – a stock index fund that tracks the MSCI EAFE (Europe, Australasia, Far East) Index.

L Fund: Lifestyle Fund – diversifies participant accounts among the G, F, C, S, and I Funds using professionally determined investment mixes (allocations)that are tailored to different time horizons. The L Funds are rebalanced to their target allocations each business day. The investment mix of each fund adjusts quarterly to more conservative investments as the fund’s time horizon shortens.

The Bottom Line

I have been paying into Social Security since I got my first paycheck at my first job. It’s mandatory. You can’t opt out. I have been actively and intentionally contributing to my company TSP plan since I became eligible. It’s MY option to do so. No one is forcing me to do this. I can check the balances of both programs online. Needless to say, the mandatory government SSA plan which I am forced to pay into has far less in it than my personal TSP plan which I have been overseeing myself.  You will come out far ahead of the rest when you take a hands on approach to your money, and your retirement. A fool and his money are soon parted. Do you want to be wise, or is it your intention to be a fool? It’s your life, it’s your money, it’s your choice. As always I wish you  happiness and success!