When the game is over, the king and the pawn go into the same box.
Italian Proverb
When the game of life is over, the only thing we take with us is our character.
Ironically, necessary for character building is tests (nes) in form of life temptations.
Temptation, however “presented,” manifests as ‘more, better and or now’ (1) as the ‘present situation’ is ‘not enough.’ If what we are and what we have was ‘enough,’ there would be no temptation nor would there be succumbing to temptation.
Ironically, temptation’s aim is not succumbing but rather it is an ally to character building – completing (shelemut) our incompletions.
Otherwise, without temptation how would character flaws, incompletions be limited, restricted or conquered?
Temptation is character’s foil or foil (down fall)
Consequently, temptation, manifested as ‘more,’ is both acculturated and hard wired. As a result, enough, be it ‘enough to live for, enough to live on,’ healing financial anxiety putting money in its place to proceed to significance – why I am, what I am meant to be do and be,’ is an uphill struggle, losing ‘more’ often than the Washington Generals lose to the Harlem Globetrotters, as there is never enough. Enough is futile though not delusional.
“As soon as you win the fight for hotdogs, they want hamburger, and after they get
hamburger, they want steak”
Saul Alinsky (yes, Saul Alinsky, my conservative friends as he has been mischaracterized)
The insatiability for more is originates from the fear of bodily physical extinction (identified as oneself) which germinates the delusional strategy of acquisition (Cain in Hebrew – yes, Cain – means acquisition). Thus Temptations (2) manifest one way or another) as more, better, now (not enough). Though temptation is the parasite we are the hosts.
Character pawn of a king, foil or foiled character – that is man’s work this year and every year relative to the his entry into the Book of Life on Yom Kippur.
(1)- more, better, now typically, in time, becomes ‘less, worse, later.’
(2) – on stage next: The Four Tops – sloth, anger, gluttony & pride
PS The above is why Enough (enough to live on; enough to live for) is a struggle
Saturday, September 18, 2010
Thursday, September 16, 2010
Correction 9/15/10 Blog
see correction in bold
If the Platte River an average depth of 3’ deep, most people over 3’ tall should be able to walk across without drowning. However, at some points, the Platte River is but 2” and other points 20’, so even Wilt Chamberlain would drown at the 20’ depth.
Personal Financial Life Planning RISK (Part B – Monte Carlo Analysis) – Part III Setting A Personal Financial Life Goal
If the Platte River an average depth of 3’ deep, most people over 3’ tall should be able to walk across without drowning. However, at some points, the Platte River is but 2” and other points 20’, so even Wilt Chamberlain would drown at the 20’ depth.
Wednesday, September 15, 2010
Personal Financial Life Planning RISK (Part B – Monte Carlo Analysis) – Part III Setting A Personal Financial Life Goal
If the Platte River an average depth of 3’ deep, most people over 3’ tall should be able to walk across without drowning. However, at some points, the Platte River is but 2” and other points 20’, so even Wilt Chamberlain would drown at the 2’ depth.
Thus, the average rate of return - The FLAW of AVERAGES – applied to personal financial life objective(s) is very ‘risky’ business – ironically increasing the risk that you won’t make your personal financial life objective(s).
Yet, average rate of return is still the employed by many financial planners, and cpas. Worse is that average rate of return is the predominant measure employed by actuaries determining the adequacy or inadequacy of public employees’ pension funds understated by multiple billions. (What does this mean to you? Higher taxes but that’s another story with the actuaries and politicians foolishly trying to obfuscate or defend average rate of return with accepted state of the art horse pucky. As one former Colorado Union official stated to me to paraphrase, “PERA (the Public Employee Retirement Association) funding is the nuclear bomb on the State of Colorado Finances.” And that statement was just on the underfunding using an ‘average rate of return.’
It is the sequence of the rate of returns that matter – not the average rate of return!
An example per Dr. Sam Savage’s Flaw of Averages.
“ Suppose you want your $200,000 retirement fund invested in the Standard & Poor's 500 index to last 20 years. How much can you withdraw per year? The return of the S&P has varied over the years but has averaged about 14 percent per year since its inception in 1952. You use an annuity workbook in your spreadsheet that requires an initial amount ($200,000) and a growth rate for the fund. "I need a number," you say to yourself, so you plug in 14 percent. Now you can play with the annual withdrawal amount until your money lasts exactly 20 years. If you do this you will be pleased to find that you can withdraw $32,000 per year.”
At the end of 20 years using the 14% average rate of return, your capital would be exhausted and the investment finished.
Here’s the rub – REALITY IS NOT AVERAGE RATES OF RETURN. Rates of return are volatile – they fluctuate – they are not smooth like Original Skippy Peanut Butter – but are chunky and can wipe out your duration in a JIF.
Given real market rates of return starting in the following years, here is how long the $200,000 would last:.
1973 – out of money in 8 years
1974 - capital intact despite 20 years of payouts at the end of 20 years
1975 - out of money after 13 years
1976 - capital exhausted in 10 years
How come?
The Dow Jones was 1020 at the beginning of 1973 but by the end of 1974 it was 616 or a 40% decline whereas by the end of 1975 having invested in 1974 the Dow Jones when the Dow was 616 was up 38% to 852!
In rate of return and the probability of making the goal, its SEQUENCE, SEQUENCE, SEQUENCE!
It’s the sequence of rate of returns NOT average rate of return!
Beware of averages alone – except in Lake Woebegone – or your personal financial life goal will woe be gone.
Therefore, employing average rates of return, alone, is RISKY and deluding. (Again, Risk is defined as the whether you make the goal or not per PART A. At a gut level: RISK is the danger of not making the goal – the failure to achieve the goal causing negative consequences.)
Okay, what then is an additional standard metric to employ besides ‘average rate of return’ and it’s flaws?
Monte Carlo Modeling.
Simply stated, Monte Carlo Analysis (which goes back to the Manhattan Project) models multiple (often many thousands) alternatives to come up with the probability (as stated as a percentage) of making one’s goal.
Thus: given w amount of resources, deployed in x allocation (% of stocks, bonds, cash etc) for y period of time, at Z payment per year, a existing asset level of assets, beginning in b etc – what is the probability of making the goal?
It should be noted that Monte Carlo Analysis did not save clients and their planners from the financial meltdown ‘black swan’ recently where 15 of 16 asset classes declined. Monte Carlo gives probability not certainty. It also should be noted that Monte Carlo, which typically requires a larger if not much larger funding level to achieve the goal, is an AUM financial planner’s dream of increased fees.
If all you know is a hammer, everything will look like a nail
Dr. Abraham Maslow
What is an AUM financial planner?
The compensation for this financial planner is based to assets under management. Thus, the “more” assets under management the “more”, he or she gets paid.
There is an inherent conflict between this type of compensation and it conflicts with the concept of Enough which is based achieving the financial goal with the less risk possible. The conflict occurs where the goal can be still be reached at a lower rate of return with the trade off being less risk (risk of not making the goal!). Thus, AUM planners inherently are MOREons though their pat answer would be ‘if we aren’t making the goal, we’d be fired – which serves as a check and balance.’ However, offsetting this response is AUM tends to make the goal relative to an external comparison – ‘how did I do versus the Dow Jones, the S&P, etc.’ rather than the internal goal!
There are good reasons and real reasons. Increased compensation – consciously or unconsciously – is the real reason – for the AUM compensation model (the hammer) with too many clients getting ‘nailed.’
(On a continuum of commission/transaction financial planners and flat fee, bracketed or hourly financial planners, I consider the AUM planner’s compensation a faux fee only planning or fee only planning not lite.)
In any event, Monte Carlo most likely will require additional assets under management therefore I prefer the assistance of a fee only planner who charges a flat fee, an hourly, or a bracketed fee (no less than, no more than based to an hourly but capped).
In summation, relative to making the goal, not running a Monte Carlo analysis, regardless of it’s windfall to AUM financial planners, would be close to malpractice – which is exactly what state governments like Colorado are doing which will wind up costing taxpayers and harming your personal financial funding. How? They plans which are underfunded on the ‘flaw of averages’ are way way way understated – in worse shape given monte carlo analysis. To get to the 90% or 95% funding level would require some or all of the following (assuming an actuarial emergency gets the states out of their locked in obligations):
· Increase in taxes or lowering of services
· Increase in bonds from the state – lowering credit rating, paying higher interest from general funds thus lowering services unless there is an increase in taxes
· Additional state and or employee contributions – again increasing or lowering services
Remembering it is not what you make but what you keep, if state taxes go up, your net rate of return goes down. You will then either have to increase your contribution to the goal and or increase the risk (really volatility of rate of return and remember ‘sequence, sequence, sequence’) to get a higher rate of return or lower the amount of the goal and or its start and duration.
Here is the effect of a .5% net increase in state tax rate on the growth of $100,000 for 20 years (7% net versus 8% net – inflation is not taken into account for this example) in reducing your assets:
8% grows to $466, 100
7.5% grows to $424,800
Thank the politicians (who are members of the state pension plans) for costing your goal $42,000…EVEN USING AVERAGE RATE OF RETURN!
State underfunding of employee/politician pensions, the personal financial ebola of higher education costs paying for Scholar Barons on tenure, and long term health care costs converge to cannibalize assets that otherwise would go to funding your goals and requiring less volatility, resulting in the delay or reduction of the goal or worse taking on more volatile ‘risky’ assets even illiquid assets – to meet the goal.
Thus, the average rate of return - The FLAW of AVERAGES – applied to personal financial life objective(s) is very ‘risky’ business – ironically increasing the risk that you won’t make your personal financial life objective(s).
Yet, average rate of return is still the employed by many financial planners, and cpas. Worse is that average rate of return is the predominant measure employed by actuaries determining the adequacy or inadequacy of public employees’ pension funds understated by multiple billions. (What does this mean to you? Higher taxes but that’s another story with the actuaries and politicians foolishly trying to obfuscate or defend average rate of return with accepted state of the art horse pucky. As one former Colorado Union official stated to me to paraphrase, “PERA (the Public Employee Retirement Association) funding is the nuclear bomb on the State of Colorado Finances.” And that statement was just on the underfunding using an ‘average rate of return.’
It is the sequence of the rate of returns that matter – not the average rate of return!
An example per Dr. Sam Savage’s Flaw of Averages.
“ Suppose you want your $200,000 retirement fund invested in the Standard & Poor's 500 index to last 20 years. How much can you withdraw per year? The return of the S&P has varied over the years but has averaged about 14 percent per year since its inception in 1952. You use an annuity workbook in your spreadsheet that requires an initial amount ($200,000) and a growth rate for the fund. "I need a number," you say to yourself, so you plug in 14 percent. Now you can play with the annual withdrawal amount until your money lasts exactly 20 years. If you do this you will be pleased to find that you can withdraw $32,000 per year.”
At the end of 20 years using the 14% average rate of return, your capital would be exhausted and the investment finished.
Here’s the rub – REALITY IS NOT AVERAGE RATES OF RETURN. Rates of return are volatile – they fluctuate – they are not smooth like Original Skippy Peanut Butter – but are chunky and can wipe out your duration in a JIF.
Given real market rates of return starting in the following years, here is how long the $200,000 would last:.
1973 – out of money in 8 years
1974 - capital intact despite 20 years of payouts at the end of 20 years
1975 - out of money after 13 years
1976 - capital exhausted in 10 years
How come?
The Dow Jones was 1020 at the beginning of 1973 but by the end of 1974 it was 616 or a 40% decline whereas by the end of 1975 having invested in 1974 the Dow Jones when the Dow was 616 was up 38% to 852!
In rate of return and the probability of making the goal, its SEQUENCE, SEQUENCE, SEQUENCE!
It’s the sequence of rate of returns NOT average rate of return!
Beware of averages alone – except in Lake Woebegone – or your personal financial life goal will woe be gone.
Therefore, employing average rates of return, alone, is RISKY and deluding. (Again, Risk is defined as the whether you make the goal or not per PART A. At a gut level: RISK is the danger of not making the goal – the failure to achieve the goal causing negative consequences.)
Okay, what then is an additional standard metric to employ besides ‘average rate of return’ and it’s flaws?
Monte Carlo Modeling.
Simply stated, Monte Carlo Analysis (which goes back to the Manhattan Project) models multiple (often many thousands) alternatives to come up with the probability (as stated as a percentage) of making one’s goal.
Thus: given w amount of resources, deployed in x allocation (% of stocks, bonds, cash etc) for y period of time, at Z payment per year, a existing asset level of assets, beginning in b etc – what is the probability of making the goal?
It should be noted that Monte Carlo Analysis did not save clients and their planners from the financial meltdown ‘black swan’ recently where 15 of 16 asset classes declined. Monte Carlo gives probability not certainty. It also should be noted that Monte Carlo, which typically requires a larger if not much larger funding level to achieve the goal, is an AUM financial planner’s dream of increased fees.
If all you know is a hammer, everything will look like a nail
Dr. Abraham Maslow
What is an AUM financial planner?
The compensation for this financial planner is based to assets under management. Thus, the “more” assets under management the “more”, he or she gets paid.
There is an inherent conflict between this type of compensation and it conflicts with the concept of Enough which is based achieving the financial goal with the less risk possible. The conflict occurs where the goal can be still be reached at a lower rate of return with the trade off being less risk (risk of not making the goal!). Thus, AUM planners inherently are MOREons though their pat answer would be ‘if we aren’t making the goal, we’d be fired – which serves as a check and balance.’ However, offsetting this response is AUM tends to make the goal relative to an external comparison – ‘how did I do versus the Dow Jones, the S&P, etc.’ rather than the internal goal!
There are good reasons and real reasons. Increased compensation – consciously or unconsciously – is the real reason – for the AUM compensation model (the hammer) with too many clients getting ‘nailed.’
(On a continuum of commission/transaction financial planners and flat fee, bracketed or hourly financial planners, I consider the AUM planner’s compensation a faux fee only planning or fee only planning not lite.)
In any event, Monte Carlo most likely will require additional assets under management therefore I prefer the assistance of a fee only planner who charges a flat fee, an hourly, or a bracketed fee (no less than, no more than based to an hourly but capped).
In summation, relative to making the goal, not running a Monte Carlo analysis, regardless of it’s windfall to AUM financial planners, would be close to malpractice – which is exactly what state governments like Colorado are doing which will wind up costing taxpayers and harming your personal financial funding. How? They plans which are underfunded on the ‘flaw of averages’ are way way way understated – in worse shape given monte carlo analysis. To get to the 90% or 95% funding level would require some or all of the following (assuming an actuarial emergency gets the states out of their locked in obligations):
· Increase in taxes or lowering of services
· Increase in bonds from the state – lowering credit rating, paying higher interest from general funds thus lowering services unless there is an increase in taxes
· Additional state and or employee contributions – again increasing or lowering services
Remembering it is not what you make but what you keep, if state taxes go up, your net rate of return goes down. You will then either have to increase your contribution to the goal and or increase the risk (really volatility of rate of return and remember ‘sequence, sequence, sequence’) to get a higher rate of return or lower the amount of the goal and or its start and duration.
Here is the effect of a .5% net increase in state tax rate on the growth of $100,000 for 20 years (7% net versus 8% net – inflation is not taken into account for this example) in reducing your assets:
8% grows to $466, 100
7.5% grows to $424,800
Thank the politicians (who are members of the state pension plans) for costing your goal $42,000…EVEN USING AVERAGE RATE OF RETURN!
State underfunding of employee/politician pensions, the personal financial ebola of higher education costs paying for Scholar Barons on tenure, and long term health care costs converge to cannibalize assets that otherwise would go to funding your goals and requiring less volatility, resulting in the delay or reduction of the goal or worse taking on more volatile ‘risky’ assets even illiquid assets – to meet the goal.
Tuesday, September 7, 2010
Personal Financial Life Planning RISK (Part A) – Part III Setting A Personal Financial Life Goal
Man seeks certainty, permanence, and continuity yet there is no fruit unless one goes out on the limb
Before elaborating on rate of return or even risk adjusted rate of return, lets deal with the question of risk
The following are definitions or ‘risk’:
· A Four Letter Word
· A Game by Parker Brothers (also makers of Sorry)
· Downside Volatility (Fluctuation) (1)
· Hazard or Peril
· Loss of Capital/ Principle Loss
· Beta, Standard Deviation, R2 and other financial measures/metrics/standards (2)
· Types: interest rate, political, inflation, longevity, deflation, credit, liquidity, currency, market, getting caught with your spouse’s best friend, etc.
· Probability/chance
· Gambling
· Being Wrong according to your insignificant other/spouse (correction: this is not a definition of risk but certainty!)
From the perspective of ENOUGH, all the above definitions of risk, whether qualitative or quantitative, are incorrect.
RISK is whether you make the goal or not.
The rest is commentary (i.e. probability of making the goal, return on beta etc.)
At a gut level: RISK is the danger of not making the goal – the failure to achieve the goal causing negative consequences.
Translating this definition to the most common fear (spoken or unspoken): risk is the fear of outliving one’s resources at retirement (and thus being dependent & or beholden).
(When I was in practice, when prioritizing personal financial life goals with clients, it has been my experience that the ranking of income replacement upon disability initially is ranked very low. However, then I employed an exercise for reprioritization. On one side of the page, the client would put his personal financial goals on one side (i.e slow down, retirement, education for kids, income replacement upon disability, income adequacy for spouse upon either’s passing etc.) Then on the other side of the page, I would have then write next to each goal what they would LOSE if the goal was not achieved. In the case of income replacement upon disability, most would write ‘being dependent, being beholden’ and some ‘having to take from my kids.’ When each goal was translated into the underlying value, they would re-rank the goal with the value attached. The re prioritization upon re-ranking with values were typically significant with income replacement upon disability always rising!
Try this exercise – but don’t if you are just going to lie to yourself.)
As am precocious child, I would play checkers with my Poppi. Often, he would let me jump one of his checkers only to find out it was a set up for him to take three of mine.
It is risky to sacrifice (risk a goal) what you have for what you don’t have – unless it is to reach a higher priority goal. Otherwise, Poppi Schwartz is just setting you up.
Besides, in the end, the king and the pawn (or checkers) all go in the same box.
Now there is a distinction between risk and uncertainty. Though I prefer to define risk as the danger of not making the goal in relationship to uncertainty (and there is a difference), author Frank Knight, makes the following distinction: risk has an unknown outcome, but we know what the underlying outcome distribution (of outcomes/results) looks like. Uncertainty also implies an unknown outcome, and we don't know what the underlying distribution looks like.
Insurers accept the risks with exclusions, don’t insure certainty except death, and fight uncertainty trying to establish it was not covered by the policy.
The risk of making a goal can often be quantified and dealt with. But planning for uncertainty, the black swan, is highly doubtful. Of the 16 asset classes during the last financial meltdown, only one, treasuries, increased during the crash.
So why didn’t one market time? Well, the probability of successful market timing over time, studies have shown is less than .00000004 whatever amount of zeros. In the ‘90’s the Dow was up something like 16% per year but if you missed the top 15 or 20 days your annual rate of return was in the 5% area.
So risk is either we make the goal or not. The probability of achieving the goal will be dealt with in greater detail next week in Risk (Part B – Monte Carlo Analysis) Part III Setting A Personal Financial Life Goal
Insurance is the transference of risk (hazard in this context). In return for transferring the risk of a large loss, one pays premiums (a small loss). Thus one substitutes a small loss to avoid a large loss.
When we seek a rate of return, after tax, that is greater than necessary to make the goal taking on riskier assets (whether for external validation, locker room bravado material, a thrill down their Chris Matthews leg, or whatever), we are increasing the probability of not making the goal. In doing so, one in seeking More potentially is sacrificing Enough – which makes one a MOREon.
Sacrificing what you need for what you don’t need – now that’s Risky Business without Tom Cruise in white socks.
And Schwartz Poppi would call you a nudnick.
Risk of not making a goal is interactive with achievement or non achievement of other goals.
For example, for whatever reason, your retirement goal is not funded as of yet. However, due to health reasons and vocational reasons, you are unable to secure good disability coverage (or what I would prefer to call income replacement upon illness or accident due to partial or full disability to avoid capital depletion).
Without your earnings if disabled, there is no retirement goal funded to your desires.
Thus, you would have to self insure the risk to the goal (or find employment where there is disability insurance on a guaranteed issue basis – but let’s stipulate that that option, marrying rich, nor getting a large inheritance are out of the question as well as getting social security disability payments as you are merely partially disabled).
All of a sudden, the risk/probability of not making the income adequacy upon partial disability impacts the rate of return you may get for your retirement or slow down prior to retirement goal.
How?
You may make the decision that you’ll need two to three years of cash flow that is not subject to the volatility/fluctuation of the stock market or illiquid assets you hold because you can’t transfer this partial disability risk through insurance.
The effect may be starting the retirement or slow down period later (decreasing the duration of those goals.)
The point is – the amount of the goal, the duration of the goal, and risk are once again all interrelated.
You pull on the string on the sleeve on the sweater and sometimes the neck bent out of shape..
And that’s what happens when you play chicken (more, more, more) with your goals.
(1) Fluctuation/volatility is confused with the risk as defined as loss of capital. Fluctuation isn’t loss of capital
(2) The problem with beta, standard deviation, r2 is they begin with a reference point instead of what worries the investor most
Next: Risk (Part B – Monte Carlo Analysis) Part III Setting A Personal Financial Life Goal
Before elaborating on rate of return or even risk adjusted rate of return, lets deal with the question of risk
The following are definitions or ‘risk’:
· A Four Letter Word
· A Game by Parker Brothers (also makers of Sorry)
· Downside Volatility (Fluctuation) (1)
· Hazard or Peril
· Loss of Capital/ Principle Loss
· Beta, Standard Deviation, R2 and other financial measures/metrics/standards (2)
· Types: interest rate, political, inflation, longevity, deflation, credit, liquidity, currency, market, getting caught with your spouse’s best friend, etc.
· Probability/chance
· Gambling
· Being Wrong according to your insignificant other/spouse (correction: this is not a definition of risk but certainty!)
From the perspective of ENOUGH, all the above definitions of risk, whether qualitative or quantitative, are incorrect.
RISK is whether you make the goal or not.
The rest is commentary (i.e. probability of making the goal, return on beta etc.)
At a gut level: RISK is the danger of not making the goal – the failure to achieve the goal causing negative consequences.
Translating this definition to the most common fear (spoken or unspoken): risk is the fear of outliving one’s resources at retirement (and thus being dependent & or beholden).
(When I was in practice, when prioritizing personal financial life goals with clients, it has been my experience that the ranking of income replacement upon disability initially is ranked very low. However, then I employed an exercise for reprioritization. On one side of the page, the client would put his personal financial goals on one side (i.e slow down, retirement, education for kids, income replacement upon disability, income adequacy for spouse upon either’s passing etc.) Then on the other side of the page, I would have then write next to each goal what they would LOSE if the goal was not achieved. In the case of income replacement upon disability, most would write ‘being dependent, being beholden’ and some ‘having to take from my kids.’ When each goal was translated into the underlying value, they would re-rank the goal with the value attached. The re prioritization upon re-ranking with values were typically significant with income replacement upon disability always rising!
Try this exercise – but don’t if you are just going to lie to yourself.)
As am precocious child, I would play checkers with my Poppi. Often, he would let me jump one of his checkers only to find out it was a set up for him to take three of mine.
It is risky to sacrifice (risk a goal) what you have for what you don’t have – unless it is to reach a higher priority goal. Otherwise, Poppi Schwartz is just setting you up.
Besides, in the end, the king and the pawn (or checkers) all go in the same box.
Now there is a distinction between risk and uncertainty. Though I prefer to define risk as the danger of not making the goal in relationship to uncertainty (and there is a difference), author Frank Knight, makes the following distinction: risk has an unknown outcome, but we know what the underlying outcome distribution (of outcomes/results) looks like. Uncertainty also implies an unknown outcome, and we don't know what the underlying distribution looks like.
Insurers accept the risks with exclusions, don’t insure certainty except death, and fight uncertainty trying to establish it was not covered by the policy.
The risk of making a goal can often be quantified and dealt with. But planning for uncertainty, the black swan, is highly doubtful. Of the 16 asset classes during the last financial meltdown, only one, treasuries, increased during the crash.
So why didn’t one market time? Well, the probability of successful market timing over time, studies have shown is less than .00000004 whatever amount of zeros. In the ‘90’s the Dow was up something like 16% per year but if you missed the top 15 or 20 days your annual rate of return was in the 5% area.
So risk is either we make the goal or not. The probability of achieving the goal will be dealt with in greater detail next week in Risk (Part B – Monte Carlo Analysis) Part III Setting A Personal Financial Life Goal
Insurance is the transference of risk (hazard in this context). In return for transferring the risk of a large loss, one pays premiums (a small loss). Thus one substitutes a small loss to avoid a large loss.
When we seek a rate of return, after tax, that is greater than necessary to make the goal taking on riskier assets (whether for external validation, locker room bravado material, a thrill down their Chris Matthews leg, or whatever), we are increasing the probability of not making the goal. In doing so, one in seeking More potentially is sacrificing Enough – which makes one a MOREon.
Sacrificing what you need for what you don’t need – now that’s Risky Business without Tom Cruise in white socks.
And Schwartz Poppi would call you a nudnick.
Risk of not making a goal is interactive with achievement or non achievement of other goals.
For example, for whatever reason, your retirement goal is not funded as of yet. However, due to health reasons and vocational reasons, you are unable to secure good disability coverage (or what I would prefer to call income replacement upon illness or accident due to partial or full disability to avoid capital depletion).
Without your earnings if disabled, there is no retirement goal funded to your desires.
Thus, you would have to self insure the risk to the goal (or find employment where there is disability insurance on a guaranteed issue basis – but let’s stipulate that that option, marrying rich, nor getting a large inheritance are out of the question as well as getting social security disability payments as you are merely partially disabled).
All of a sudden, the risk/probability of not making the income adequacy upon partial disability impacts the rate of return you may get for your retirement or slow down prior to retirement goal.
How?
You may make the decision that you’ll need two to three years of cash flow that is not subject to the volatility/fluctuation of the stock market or illiquid assets you hold because you can’t transfer this partial disability risk through insurance.
The effect may be starting the retirement or slow down period later (decreasing the duration of those goals.)
The point is – the amount of the goal, the duration of the goal, and risk are once again all interrelated.
You pull on the string on the sleeve on the sweater and sometimes the neck bent out of shape..
And that’s what happens when you play chicken (more, more, more) with your goals.
(1) Fluctuation/volatility is confused with the risk as defined as loss of capital. Fluctuation isn’t loss of capital
(2) The problem with beta, standard deviation, r2 is they begin with a reference point instead of what worries the investor most
Next: Risk (Part B – Monte Carlo Analysis) Part III Setting A Personal Financial Life Goal
Sunday, August 29, 2010
Cutting The Mustard: Beholden & enough
Why is a poor man like a dead man? He does not make a ‘living’ (chiyut) on his own, while the living sustain themselves and do not require the help of others. Since a poor man does not sustain himself, he is not considered among the living
Gur Arye, Ex. 4:19
Proverbs 15:27 states, “he who dislikes gifts shall live” meaning that he who disdains living off others has his own living (chiyut).
No wonder we hate being beholden (obligated, dependent, indebted) and value self sufficiency (enough – FU**ability©) and admire those who are independent, not bound, and those who have pulled themselves up by the bootstraps. Yet, while we value rugged individualism, being social beings and not being self sufficient necessitates a division of labor and mutual need.
Cutting the mustard = to do what is needed, live up to expectations
Not being ‘beholden’ conflicts with the need of others but can be ameliorated by payment and or contribution (cutting the mustard).
However, when one can no longer cut the mustard, even if he or she has accumulated sufficient resources to make payment for premium ingredient Grey Poupon, there is still that feeling of being ‘the poor man’ (using French’s) and not living.
As a personal financial life planner, I have seen over and over again those who are not financially beholden, sacrifice their ‘living” for fear that they no longer can Cut The Mustard (despite having 50 years of Grey Poupon accumulated)! Worse, some of these individuals will deplete the shelves of their Grey Poupon (sacrificing ‘enough’ even FU**ability©) supposedly in the name of contribution or even ‘needing more.’ Why? Not being able to ‘cut the mustard’ now means to be poor, dying and or dead.
So as not to be dead, beholden, poor – we put at risk & jeopardy enough & FU**ability© – all for the want of a condiment. (1)
(1) Guirjeff’s Law of 7: That which we intend becomes it’s exact opposite in time.
Gur Arye, Ex. 4:19
Proverbs 15:27 states, “he who dislikes gifts shall live” meaning that he who disdains living off others has his own living (chiyut).
No wonder we hate being beholden (obligated, dependent, indebted) and value self sufficiency (enough – FU**ability©) and admire those who are independent, not bound, and those who have pulled themselves up by the bootstraps. Yet, while we value rugged individualism, being social beings and not being self sufficient necessitates a division of labor and mutual need.
Cutting the mustard = to do what is needed, live up to expectations
Not being ‘beholden’ conflicts with the need of others but can be ameliorated by payment and or contribution (cutting the mustard).
However, when one can no longer cut the mustard, even if he or she has accumulated sufficient resources to make payment for premium ingredient Grey Poupon, there is still that feeling of being ‘the poor man’ (using French’s) and not living.
As a personal financial life planner, I have seen over and over again those who are not financially beholden, sacrifice their ‘living” for fear that they no longer can Cut The Mustard (despite having 50 years of Grey Poupon accumulated)! Worse, some of these individuals will deplete the shelves of their Grey Poupon (sacrificing ‘enough’ even FU**ability©) supposedly in the name of contribution or even ‘needing more.’ Why? Not being able to ‘cut the mustard’ now means to be poor, dying and or dead.
So as not to be dead, beholden, poor – we put at risk & jeopardy enough & FU**ability© – all for the want of a condiment. (1)
(1) Guirjeff’s Law of 7: That which we intend becomes it’s exact opposite in time.
Wednesday, August 25, 2010
Schwartzing #1 Insurance & Res. Real Estate (Your Home) Is Not An Investment
SCHWARTZING #1
(Schwartzing is basically - "I don't have time for nonsense. He's my thoughts & opinion (usually it is to a person who isn't looking for an information or opinion though they say otherwise - but ratification only or having someone to blame if their own choice doesn't work out) -
INSURANCE = substituting a small loss (premium) to avoid a large loss -IT IS NOT AN INVESTMENT - INSURANCE IS A TRANSFERENCE OF RISK - PERIOD.
RESIDENTIAL REAL ESTATE = SHELTER NOT AN INVESTMENT
ATTEMPTS TO REFRAME INSURANCE AND RESIDENTIAL REAL ESTATE INTO INVESTMENTS ARE SELF SERVING BSers - AND LOOK AT THE RESULTS:
1) FINANCIAL MELTDOWN CRISIS INSTIGATED BY NO MONEY OR LOW MONEY DOWN AND BS QUALIFICATIONS
2) INSURERS DIFFICULTIES IN THE LATE '80'S AND 90'S - AND SO CALLED VANISHING PREMIUM POLICIES 'REINCARNATING'
BOTH (INSURANCE & RESIDENTIAL REAL ESTATE) GOT F**KED UP AND LOST THEIR WAY (OBJECTIVE) WHEN THEY WERE SPUN, SUBSIDIZED INTO ATTEMPTS TO MAKE THEM INVESTMENTS
AND THAT' A SCHWARTZING - go wash you hands
(Schwartzing is basically - "I don't have time for nonsense. He's my thoughts & opinion (usually it is to a person who isn't looking for an information or opinion though they say otherwise - but ratification only or having someone to blame if their own choice doesn't work out) -
INSURANCE = substituting a small loss (premium) to avoid a large loss -IT IS NOT AN INVESTMENT - INSURANCE IS A TRANSFERENCE OF RISK - PERIOD.
RESIDENTIAL REAL ESTATE = SHELTER NOT AN INVESTMENT
ATTEMPTS TO REFRAME INSURANCE AND RESIDENTIAL REAL ESTATE INTO INVESTMENTS ARE SELF SERVING BSers - AND LOOK AT THE RESULTS:
1) FINANCIAL MELTDOWN CRISIS INSTIGATED BY NO MONEY OR LOW MONEY DOWN AND BS QUALIFICATIONS
2) INSURERS DIFFICULTIES IN THE LATE '80'S AND 90'S - AND SO CALLED VANISHING PREMIUM POLICIES 'REINCARNATING'
BOTH (INSURANCE & RESIDENTIAL REAL ESTATE) GOT F**KED UP AND LOST THEIR WAY (OBJECTIVE) WHEN THEY WERE SPUN, SUBSIDIZED INTO ATTEMPTS TO MAKE THEM INVESTMENTS
AND THAT' A SCHWARTZING - go wash you hands
Thursday, August 19, 2010
Up OR Down (More): Up AND Down (Enough) + A Torah Goes To The Movies 'UP'
Up OR Down (More): Up AND Down (Enough)
Did it (the stock, the bond, etc) go Up OR Down?’ is the game of More. In contrast, Enough is concerned with Up AND Down relative to the goal.
· More is outside in relative to an external scoreboard; Enough is inside out – internally comparative.
· More is concerned with the Dow Jones whereas Enough is interested relative to progress toward or maintenance of a goal.
· More is ‘more, better, now’ which usually becomes ‘less, worse, and later’
· More is never ending as there is never Enough.
Societial external validation of worthiness, compounds the anxiety inducing Ups OR Downs of More. Then add for good measure the fear of not having Enough, and More becomes a hardwired almost instinctual autopilot. The More Up or Down result: - upsy daisy - upended.
And that’s the MOREal (‘upshot’) of the story – ‘enough’ to make one Up-chuck.
Up OR Down = More (Moreon Behavior)
Up AND Down = is achieving Enough – regardless.
And now an Encore Presentation of an UPPER (Fixer UPPER)
Up – Paradise Falls – Lost and Found: A Torah Goes To the Moves
By Uptrodden (1)
All lost; whole find
e.e. cummings
Up is two stories.
First there is the montage of the love between Carl and Ellie (from childhood where she attaches a grape soda bottle cap to his jacket signifying each other’s club membership) through the crushing weight Ellie’s passing with now 78 year old Carl being left behind to being crotchety and a curmudgeon in the Walter Matthau sense)
Set by Ellie predeceasing Carl, the second story, has Carl, now the homebody, pursuing his & Ellie’s lifelong dream of their youth: an adventure to South America’s “Paradise Falls” following the footsteps of famed explorer Charles Muntz.
In a last-ditch effort to save himself from becoming an inmate in a nursing home, homebody Carl harnesses thousands of helium balloons to his ‘abode,’ uprooting and literally takes flight to Paradise Falls (grape bottle cap still adorning his lapel)..
An underlying theme in Judaism (and Original Incompletion) is the cyclical circular process of down (descend) to go up (ascend) and up to go down. This process of our soul’s curriculum perfects oneself (Tikkun Atzmi) via developing one’s portion (chalik) thus completing one’s incompletions and meriting Teshuvah (return) to the world to come. (the hidden that awaits – temporally?). The metaphors for this up down, down up – comeuppance/uplifting – is often masked in tests (nes), choices, and dialectic tension masked symbolically between:
· clean/unclean,
· blocked,/unblocked (uprooting/uprighting),
· chamatz (‘uppity’ arrogance – puffed up /unleavened acknowledgment) and humility (balloon bursting - upchuck)
· light/darkness (down) – upsy daisy
(It should be noted that in ‘the perceived down’ can be an upshot revealing the concealed light if reframed properly – it’s a prism/prison refracting .)
There are three basic interpretations of the circular cyclical process:
· Down To Go Up -(descend) to (ascend) – (exile to redemption/deliverance) like the material (down) and spiritual (up) engaging in a process of dance spiritualizing the material, materializing the spiritual
· Uprising- ascension for descension. Man elevates first (ascend – up) for the spiritual to descend (come down) per the Tanya.
· Engagement – the material and the spiritual like the paraffin and the light of the candle INcounter (not old T groups) for illumination in a dialectic
May you have the strength to struggle with your dreams and when you fail, may you always fail forward
A Jewish Blessing (somewhat modified)
Carl, now with walker – an elevator on his stair, falls – forward ‘up’ward. Though his house is in good repair (Tikkun Bayit), the house has become his Egypt – comfortable though resigned memories and the adventure of his & Ellie’s youth unfinished. Rather than be taken to the nursing home, with the house affixed with the hundreds/thousands of helium filled balloons, Carl begins his Exodus from his Egypt (limitations) repairing himself (Tikkun Atzmi).
Carl’s mission: to finally fulfill the desired journey of his & Ellie’s childhood to “Paradise Falls” – ‘the promised adventureland.’
On this journey, Carl is accidentally accompanied by Russell, the Wildlife Adventure scout, who has a pursuit as well: his final ‘merit’ badge and recognition by his dad.
The pursuit for “Paradise Falls” reverses Carl’s Paradise Lost (Ellie) reigniting his candle. This quest also yields (hod) a kinship between Carl and Russell in part filling the hole in each other’s soul. (Carl’s caused by the loss of Ellie, and Russell’s levado (2) from absentee parents which no amount of merit badges fulfill). Carl and Russell, through their adventure, repairing a part of each other’s world – Tikkun Olam – inside out ).
The voyage to “Paradise Falls” is para-dicey with tests (nes – in Hebrew also means miracle) in Carl’s journey ‘upward’ Tikkun Atzmi (repairing perfecting oneself) (3)
Up, down, down Up.
Up, descend, ascend – to Paradise…Falls.
Not outward bound – but inward bound
The process of UpGrade:
Tikkun Atzmi, Tikkun Bayit, Tikkun Olam (inside out) completing one’s soul curriculum assignment.
The film concludes with Russell adorned with the grape soda top awarded by Carl.
And that’s the ‘merited’ badge.
“On ‘word, ’ & Upward – Olam Haba regained & Upheld: Upsy-daisy (4)
(1) Uptrodden has been my aol email name for 20+ years. As a fee only financial planner, I represented ‘the few, the proud, the rich, the former rich – The Uptrodden).
(2) Russell’s levado – the inability to share (symbolically) his merit badges with his dad.
(3) Note: there was no product placement for 7UP in this movie – though Refreshing & ‘the uncola’).
(4) No puns were harmed and all pun labor laws were complied with in the writing of this ‘screen’ play on words – The Punisher.
Did it (the stock, the bond, etc) go Up OR Down?’ is the game of More. In contrast, Enough is concerned with Up AND Down relative to the goal.
· More is outside in relative to an external scoreboard; Enough is inside out – internally comparative.
· More is concerned with the Dow Jones whereas Enough is interested relative to progress toward or maintenance of a goal.
· More is ‘more, better, now’ which usually becomes ‘less, worse, and later’
· More is never ending as there is never Enough.
Societial external validation of worthiness, compounds the anxiety inducing Ups OR Downs of More. Then add for good measure the fear of not having Enough, and More becomes a hardwired almost instinctual autopilot. The More Up or Down result: - upsy daisy - upended.
And that’s the MOREal (‘upshot’) of the story – ‘enough’ to make one Up-chuck.
Up OR Down = More (Moreon Behavior)
Up AND Down = is achieving Enough – regardless.
And now an Encore Presentation of an UPPER (Fixer UPPER)
Up – Paradise Falls – Lost and Found: A Torah Goes To the Moves
By Uptrodden (1)
All lost; whole find
e.e. cummings
Up is two stories.
First there is the montage of the love between Carl and Ellie (from childhood where she attaches a grape soda bottle cap to his jacket signifying each other’s club membership) through the crushing weight Ellie’s passing with now 78 year old Carl being left behind to being crotchety and a curmudgeon in the Walter Matthau sense)
Set by Ellie predeceasing Carl, the second story, has Carl, now the homebody, pursuing his & Ellie’s lifelong dream of their youth: an adventure to South America’s “Paradise Falls” following the footsteps of famed explorer Charles Muntz.
In a last-ditch effort to save himself from becoming an inmate in a nursing home, homebody Carl harnesses thousands of helium balloons to his ‘abode,’ uprooting and literally takes flight to Paradise Falls (grape bottle cap still adorning his lapel)..
An underlying theme in Judaism (and Original Incompletion) is the cyclical circular process of down (descend) to go up (ascend) and up to go down. This process of our soul’s curriculum perfects oneself (Tikkun Atzmi) via developing one’s portion (chalik) thus completing one’s incompletions and meriting Teshuvah (return) to the world to come. (the hidden that awaits – temporally?). The metaphors for this up down, down up – comeuppance/uplifting – is often masked in tests (nes), choices, and dialectic tension masked symbolically between:
· clean/unclean,
· blocked,/unblocked (uprooting/uprighting),
· chamatz (‘uppity’ arrogance – puffed up /unleavened acknowledgment) and humility (balloon bursting - upchuck)
· light/darkness (down) – upsy daisy
(It should be noted that in ‘the perceived down’ can be an upshot revealing the concealed light if reframed properly – it’s a prism/prison refracting .)
There are three basic interpretations of the circular cyclical process:
· Down To Go Up -(descend) to (ascend) – (exile to redemption/deliverance) like the material (down) and spiritual (up) engaging in a process of dance spiritualizing the material, materializing the spiritual
· Uprising- ascension for descension. Man elevates first (ascend – up) for the spiritual to descend (come down) per the Tanya.
· Engagement – the material and the spiritual like the paraffin and the light of the candle INcounter (not old T groups) for illumination in a dialectic
May you have the strength to struggle with your dreams and when you fail, may you always fail forward
A Jewish Blessing (somewhat modified)
Carl, now with walker – an elevator on his stair, falls – forward ‘up’ward. Though his house is in good repair (Tikkun Bayit), the house has become his Egypt – comfortable though resigned memories and the adventure of his & Ellie’s youth unfinished. Rather than be taken to the nursing home, with the house affixed with the hundreds/thousands of helium filled balloons, Carl begins his Exodus from his Egypt (limitations) repairing himself (Tikkun Atzmi).
Carl’s mission: to finally fulfill the desired journey of his & Ellie’s childhood to “Paradise Falls” – ‘the promised adventureland.’
On this journey, Carl is accidentally accompanied by Russell, the Wildlife Adventure scout, who has a pursuit as well: his final ‘merit’ badge and recognition by his dad.
The pursuit for “Paradise Falls” reverses Carl’s Paradise Lost (Ellie) reigniting his candle. This quest also yields (hod) a kinship between Carl and Russell in part filling the hole in each other’s soul. (Carl’s caused by the loss of Ellie, and Russell’s levado (2) from absentee parents which no amount of merit badges fulfill). Carl and Russell, through their adventure, repairing a part of each other’s world – Tikkun Olam – inside out ).
The voyage to “Paradise Falls” is para-dicey with tests (nes – in Hebrew also means miracle) in Carl’s journey ‘upward’ Tikkun Atzmi (repairing perfecting oneself) (3)
Up, down, down Up.
Up, descend, ascend – to Paradise…Falls.
Not outward bound – but inward bound
The process of UpGrade:
Tikkun Atzmi, Tikkun Bayit, Tikkun Olam (inside out) completing one’s soul curriculum assignment.
The film concludes with Russell adorned with the grape soda top awarded by Carl.
And that’s the ‘merited’ badge.
“On ‘word, ’ & Upward – Olam Haba regained & Upheld: Upsy-daisy (4)
(1) Uptrodden has been my aol email name for 20+ years. As a fee only financial planner, I represented ‘the few, the proud, the rich, the former rich – The Uptrodden).
(2) Russell’s levado – the inability to share (symbolically) his merit badges with his dad.
(3) Note: there was no product placement for 7UP in this movie – though Refreshing & ‘the uncola’).
(4) No puns were harmed and all pun labor laws were complied with in the writing of this ‘screen’ play on words – The Punisher.
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