Saving Interest Rate Is Not Low Enough

I’m sure that’s what all the banks think. “If only we can somehow make it 0% interest and still get people to deposite their money…”

This post is provoked as I am doing my monthly accounting and noticed this in my ING Direct Saving account.

So 1.5% is not low enough and they make it 1.4%, whaaaa….

They are really being unhelpful for those of us who are saving their money.

There are those people who think, “I will lose my money if I put them in stock market. I will not make any interest if I put them in saving. I will also lose money to inflation if I put them under my mattress. To hell with it, I’m going to spend it all.”

For sure that is not the right mentality to have, respective to saving and being frugal, but surely, we can all see why people feel that way, no?

PS. Hope everyone had a good July 4th weekend.

Originally posted 2009-07-05 16:01:24. Republished by Blog Post Promoter

A Little Less Purpose, A Little More Laughter

A little less purpose, a little more laughter could just save our world.

I had an interesting little IM exchange with a friend:

Friend: hey man
Me: yo
Friend: how’s life man
Me: it alright
Friend: what’s the purpose of life?
Me: there’s none
Friend: ??
Me: isn’t that great?
Friend: why great
Me: if there is this ONE purpose in life, wouldn’t we all be living everyday, carrying the burden to fulfill this purpose? if there is not… we are free!
Me: hooray

If we can stop living so purposefully, we can live and laugh that much more freely.

And if we can live without purpose.
If we can simply laugh anyways and anyhow…

How much less of the things we think we NEED to do in life…

You wouldn’t need to try to be happy, which makes you go looking for therapeutic things to do, which usually entails sitting all day and watch TV as a numb living zombie on the couch where the TV show gives you a “living jolt” now and then, and/or consuming large amount of body-destroying junk food.

You wouldn’t need all the external things and experience to feed your thirst for happiness, which makes you a wasteful consumer. That will save you money, and without demand, companies would stop producing things thus helps to conserve all natural resources.

You wouldn’t be so depressed affecting your body negatively which eventually takes you to the doctor or psychiatrists and causes you to take all those drugs which causes you to have to see doctors and take drugs even more later. (I smell a solution to our “health care problem.”)

You wouldn’t need to be famous, powerful, rich which takes you on a ceaseless pursuit that will inevitably leave you with an empty feeling in the end (thus let you nourish your family and other human relationship).
You wouldn’t need to “save” other people because no happy laughing person needs “saving”.

Guess what? I think I had just discovered a recipe to save our world… haha.

Yes, I dream too.

It all boils down to the truth that, when we think we must have a purpose, both individually and humanity as a whole, we are actually saying…

“I am important”
“We are important.”

In other words, me Me ME!!!

I know we need to do what we need to do, but that means in so far that we do what we need to do and be able to leave it at that and let go.

If we can stop living so purposefully, we can live and laugh just that much more freely.

We would stop hurting each other.
We would stop killing other creatures.
We would stop destroying our environment.

Originally posted 2010-02-28 22:04:37. Republished by Blog Post Promoter

Why maxing out 401k is not as great an idea as it sounds

Question 401k like L would from Death Note

Question 401k like L would from Death Note

In 2013, the maximum contribution is up to $17,500 while it’s an additional $5,500 for those 50 years or older. Everywhere you go on the interent, you can read articles recommending to contribute maximum to your 401k. It frustrates me to hell that people easily make such recommendation, so I’ll jump straight into my stance…

By all means, anyone should contribute enough to get all of the company’s matchings if the company does that.

Beyond that, I argue that contributing maximum to 401k plan may not be as good an idea as we think!

Below are my reasons:

  • 401k is illiquid until you’re 55. That is when you can withdraw without penalty. Until then, you can only take a loan which you will have to pay back (to yourself with interest) to access the money without penalty. At the same time, most 401k plans only allow withdrawal when you leave the company. Illiquid money may equal opportunity cost for other investment opportunities.
  • 401k has management fees, service charges, etc.. Depending on who the company hire and how big the 401k plan is, fees vary but any kind of fees will reduce your rate of return.
  • 401k’s investment will encounter selling pressure. I already mentioned 401k is illiquid and you may only have a very limited amount of investment choices in the plan. In such a case, you can get stuck holding onto investment that will continue to drop in values because population is aging and there will be more people trying to sell investments to retire than ones joining the work force.
  • 401k investmnt loss is not tax-deductible. Loss deduction is a nice tool to have for managing your investment.
  • 401k is tax-deferred, not tax free. Income tax is 25% or below for much of the population. Capital gain tax had been at 15% is now at 20% and will likely remain lower than income tax in future. Looking at our government debt, future income tax will likely be higher… much higher. Do you really want tax-deferred (AKA paying the higher income tax rate in future)?
  • A Math example…

    Here I show the result of someone contributing $5000 yearly and growing it over 30 years in a 401k vs. taxable account. I use 7.5% growth rate for 401k to account for some fees. To simplify, I took the tax out using the “Tax Rate in Future” at the end, and it implies future income tax for 401k and future capital gain tax for taxable account. So for 401k, I subtrated out 25% income tax while for taxable account, I subtracted 15% capital gain tax from just the gains to get the totals. This result tells me that the advantage of a 401k account is minimal and cannot outweigh the disadvantages mentioned. I provide a few more math results by changing the variables at the end of the post.

  • Last but not least… you may die soon. If you know you will die in a few months but your money is stuck in 401k… you are shit out of luck accessing it without paying penalty+tax. This one maybe a bit of a stretch. But hey, it’s worth thinking about!

The final take away is, maxing out 401k is really a personal preference where it is hard to say if it’s truly the best option for planning retirement. Assuming you can implement the same investment strategy, the advantage is minimal while there are disadvantages and more unknowns in the futures due to the 401k money being tax-deferred.

Personally, the advangages and disadvantages are largely a wash so I’d rather have flexibility controlling my money in taxable accounts and not have it locked up.

At any rate, what I really am saying is that each of us needs to understand thoroughly before jumping on the max-out-your-401k wagon.

We didn’t talk about Roth IRA here but it is likely a better option to put money into Roth IRA first vs. maxing out 401k. Also, having a taxable brokerage for investment should also be considered and done in junction with 401k, Roth IRA, etc.

All of us need to have saving/investment vehicle outside of 401k because let’s recall, 401k was created as a supplemental vehicle to help us save for our retirement — not the only thing we use.

More Math examples with varying parameters and results:
Rate of return for 401k is 7% to simulate more fees.

Rate of return for 401k is 7% to simulate more fees and future income tax is increased to 30%.

Rate of return for 401k is 7% to simulate more fees. To simulate tax increase across the board, future income tax is increased to 35% and future capital gain tax is increased to 20%.

Rate of return for 401k is 8% assuming a good plan with minimal fees.

Rate of return for 401k is 8% assuming a good plan with minimal fees and future income tax is increased to 30%.

Rate of return for 401k is 8% assuming a good plan with minimal fees. To simulate tax increase across the board, future income tax is increased to 35% and future capital gain tax is increased to 20%.
Rate of return for 401k is 7% to simulate more fees and future income tax is increased to 30%.

Originally posted 2013-01-16 01:13:55. Republished by Blog Post Promoter

When Both Religion and Science are Strong

A friend sent me this quote last week:

Formerly, when religion was strong and science weak, men mistook magic for medicine; now, when science is strong and religion weak, men mistake medicine for magic.
Thomas Szasz, The Second Sin (1973) “Science and Scientism”

In follow up, I asked the question:

The quote was from 1973. So here we are in 2010, what happen when both science and religion are strong? Guess my answer :)

My friend is very nice and played along with me:

Awww… this is like a quiz at school!>.< Ummmm ... .... Religience or Sciligion as inter-disciplinary research? .... The (Wonderful) Wizarding World of Harry Potter? .... We think we know everything but we know nothing? did I get it? I want a prize if I got it right!

The last answer came very close, so I promised my friend half a price when we meet next :) The answer I had in mind was…

In 21st century, when both science and religion are strong…
…men mistake themselves for God.

Note: God meaning the omnipotent, omniscient grand father figure in the sky, not God as in the Tao, or Brahman or what not.

Originally posted 2010-06-27 21:23:17. Republished by Blog Post Promoter

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