Filed under: Finance
You have to be more aggressive with Comcast. Here’s how you start the conversation about lowering the price: "Hi. I’m calling to cancel my service." It’s not like doing that with the gas company or something where they just shrug and say "OK, we’ll have it disconnected in a couple days and send you your final bill soon afterward." No. They turn you over to the Retention department. They act like a desperate, clingy lover that you’re trying to break up with. "Why do you want to leave us? [sob] I thought everything was going great. Is there anything I can do to get you to stay?" It’s hilarious. At that point it’s not time to say "it’s not you; it’s me." Instead, say "my rates have risen to a level where the service is not worth it to me. Also, FiOS is available where I live now, and they’re making some very attractive offers." They’ll definitely make you a new offer. Ask "is that the best you can do?" Finally, "OK, you’ve given me something to consider. Which number should I call back after talking to Verizon?"
Worst case scenario is they call your bluff and you go with fiber optic service, which you were considering doing anyway.
Nice post:
To Generate Income In Early Retirement
As outlined in this previous post about One Way To Track Your Progress Towards Financial Independence, you can say you’ve reached financial independence when your “passive” investment income equals your monthly expenses (”crossover point”):
The above chart was taken from the Your Money or Your Life, which also says the best way to generate income is by purchasing 30-year Treasury Bonds. But there are a variety of other ways that retirees generate income for retirement. Each one has their own pros and cons.
High-Grade Bonds or Certificates
U.S. Treasury bonds are a very safe and reliable way to generate regular income, as it is guaranteed by the U.S. government and they are very liquid. A similar situation results you invest in bank CDs or other investment-grade corporate or municipal bonds. The primary drawbacks are lower returns, especially relative to inflation. The 30-year bond is currently yielding somewhere around 4.5%. The current real (above inflation) yield for a 20-year TIPS (inflation-indexed bond) is only about 2.20%.
This means that if you want both the highest safety and you wish to only live off the interest of your money without ever touching the principal, you can only withdraw about 2.2% each year. That’s only $183 per month for each $100,000.
60/40 Asset Allocation with 4% Safe Withdrawal Rate
Although there is still much ongoing debate, the “4% rule” is based on on research by William Bergen:
William Bengen, a U.S. researcher, has back-tested a 4% withdrawal rate with a balanced portfolio of U.S. stocks and government bonds earning overall market returns and found that you would have been able to safely withdraw 4% of your portfolio over any 30-year period since 1926. [source]
The general idea is that if you have a portfolio with an asset allocation of 60% stocks/40% bonds, you can withdraw 4% of the portfolio each year with only a small chance of running out of money somewhere down the line. A 4% withdrawal rate would be $333/month for each $100,000. However, your portfolio will experience wilder swings, and this rigid method is very sensitive to the returns in the first years of retirement. If you have a bad decade upfront, your chance of going broke rises quickly.
Income-Focused Mutual Funds
These are mutual funds who primary objective is not growth, but to create a stable income stream from a combination of stock dividends and bond interest. The secondary objective is some capital appreciation, which ideally will help the income stream to keep up with inflation.
A passive index fund example is the Vanguard Target Retirement Income Fund (VTINX), which is currently yielding 4.05%. A popular actively-managed example is the Vanguard Wellesley Income Fund (VWINX), which is currently yielding 4.71%. Both of these funds hold roughly 35% in stocks/65% in bonds. Wellesley has been around since 1929, and many retirees swear by the reliable income it produces.
Managed Payout Mutual Funds
A new breed of mutual funds actually adjusts to help you spend your money as fast as you like. You choose how fast you wish to withdraw your money (3%? 5%? 7%?), and the fund does it’s best to accommodate that without going broke. Vanguard has their Managed Payout Funds, and Fidelity has their Income Replacement Funds.
These funds help you create regular monthly payments like an annuity, but still include risk from the stock market. They are also very new and could be seen as unproven.
Individual Dividend Stocks
I know of several retirees who manage their own portfolios of individual stocks. These people accumulate shares in companies with a history of reliable stock dividends, like General Electric and Coca-Cola, and live off the dividends. An ETF of top dividend producers, DVY, currently yields 5.14%.
I would be wary though that the share value of these stocks can vary widely without the cushion of bonds. DVY has dropped by over 20% so far this year, which is indicative of many similar dividend stocks.
Income Annuity
With a simple version of an immediate annuity, you hand over a lump-sum upfront in return for fixed income payments for life. Of course, if you die early then you don’t get your lump sum back. However, you could live until 110. It’s almost like life insurance in reverse. A special risk here is that your insurance company must stay solvent the entire time, so you must check credit ratings.
I went to ImmediateAnnuities.com and looked into a Joint Annuity, where the income payments keep coming as long as one of us are alive. A rough quote for a 40-year old says that each $100,000 paid will get me about $450 a month. That is the same as saying I can earn 5.4% interest forever, but remember that I lose the principal. Of course, this value goes up with age. For a 60-year old couple, you can get 6.4% forever. At age 70, you can get 7.5% forever.
How much income will a million bucks get you?
Based on these numbers, with $1,000,000 one could get anywhere from $1,830 a month (very little risk, no principal loss) to $5,833 per month (fixed annuity at age 65, all principal is given up). I’d probably end up going with something in between, but it is food for thought.
I’d want to go back 50 years. I’d tell myself: “Think very very carefully about the choices you make. Write down what you want when you’re my current age. (Hint: You didn’t get it because of those choices.) And, remember that in the future, the “Shouldas, wouldas, and couldas” will really annoy the ever loving out of you. Looking back you’ll say SWC!”
Success for the current generation IMHO is: (1) ruthless financial discipline — no bad debt; (2) a life long interest in learning — education — a degree — they can’t take it away from you; (3) a white collar job in order to save big bucks; (4) a blue collar skill for hard times — never saw a poor plumber; (5) one or more internet based businesses — your store is always open; (6) a free time hobby that generates income; and (7) a large will-maintained network of people who can “help” you.
Scott Burns provides a detailed view on how much you need to retire and still be in upper middle class in his article. Though, I don’t agree with the portfolio, its a good summary of knowing how much you need to retire comfortably.
To get the wealth figure I use the average dividend yield on the S&P 500 and the yield on a 5-year Treasury obligation. Then I assume the portfolio is invested 50/50 in stocks and 5-year Treasuries to calculate the average yield from the portfolio. Finally, I divide the needed income by the average portfolio yield to learn the required wealth (see table below).
This table shows how much you need in financial assets to produce an income at the 25th percentile of all American households. The actual amount could be changed by substituting investments with different yields than the S&P 500 index and 5 year Treasury note that are used in this example.
Good Cartoon explaining how and why stocks come into existance
In this context its also worth knowing how credit works in America and how all that credit crisis started.
Filed under: Investment
Housing price has started to bloat to the current level only since 1995. Below graph by Yale professor Robert Shiller, shows the history
Filed under: Finance
SmartMoney listed the top brokerage accounts for 2009. Based on Value per trade and customer service, seems like TradeKing is really good for non retirement taxable account’s stock plays.
From getrichslowly
Rules for investment success from an article that Templeton wrote in 1993. In “16 Rules for Investment Success” [PDF], he explains his approach to investing. Some of Templeton’s advice includes:
- Invest — don’t trade or speculate. “The stock market is not a casino, but if you move in and out of stocks every time they move a point or two…the market will be your casino.”
- Remain flexible and open-minded about types of investment. “There are times to buy blue chip stocks, cyclical stocks, corporate bonds, U.S. Treasury instruments, and so on. And there are times to sit on cash…The fact is there is no one kind of investment that is always best.”
- Buy low. “It is extremely difficult to go against the crowd — to buy when everyone else is selling or has sold, to buy when things look darkest…[but] chances are if you buy what everyone is buying you will do so only after it is already overpriced.”
- When buying stocks, search for bargains among quality stocks. “Determining quality in a stock is like reviewing a restaurant. You don’t expect it to be 100% perfect, but before it gets three or four stars you want it to be superior.”
- Diversify. “In stocks and bonds, as in much else, there is safety in numbers.”
- Do your homework or hire wise experts to help you. “People will tell you: Investigate before you invest. Listen to them. Study companies to learn what makes them successful.”
- Don’t panic. “The time to sell is before the crash, not after.”
- Learn from your mistakes. “The only way to avoid mistakes is not to invest — which is the biggest mistake of all…The big difference between those who are successful and those who are not is that successful people learn from their mistakes and the mistakes of others.”
- An investor who has all the answers doesn’t even understand all the questions. “A cocksure approach to investing will lead, probably sooner than later, to disappointment if not outright disaster. Even if we can identify an unchanging handful of investing principles, we cannot apply these rules to an unchanging universe of investments—or an unchanging economic and political environment. Everything is in a constant state of change, and the wise investor recognizes that success is a process of continually seeking answers to new questions.”
- Do not be fearful or negative too often. “Even in the dark ’70s, many professional money managers — and many individual investors too — made money in stocks, especially those of smaller companies. There will, of course, be corrections, perhaps even crashes. But, over time, our studies indicate stocks do go up…and up…and up.”
