BITTER

So I remember telling my liberal girlfriends in San Francisco "congratulations" after the November 2008 election and promising to give Obama a chance. Nearly two years later I'm more than absolutely disgusted... I'm dejected. It started small -- today I received notice from my health care policy that certain items would "no longer be deductible" as health savings expenses due to "legislation reform" beginning in January 2011. After some digging, I learned that this isn't the only "change" I can "hope" for: there are a huge number of tax increases -- the most in a long, long time. Apparently the liberal majority in Congress slept through or wait... neglected to sign up for Economics and Finance classes -- that's right, they were in Public Policy or some sort of Sociology class discussing the down trodden.

So you're going to raise taxes on the people paying the most taxes. Hmm, have you ever looked at California's little case study -- more people leaving than coming and ultimately decreased tax revenue. That's because people also spend less and hire less when you tax the daylights out of them.

Well, at least we'll all "feel" better. Nancy Pelosi could probably just forgo the use of her jet for personal reasons but that would just be too sensible and fiscally responsible, wouldn't it.

I hope those of you that voted on this "hope and change" will go ahead and pay my increased share of taxes into a black hole. Don't even get me started about oil and off-shore drilling -- we wouldn't be in this mess if we could just drill for the damned oil on our own land.

Cool Personal Finance Tool and it's Free!

Mint touts itself as "the best free way to manage and grow your money". Money Magazine rates it the top online personal finance tool. It's simple, quick and just darned cool because it keeps all of your information in one place and provides you with visual charts and email updates.

So what is it? Mint.com is a free online platform that allows you to track your spending, savings, budgeting, etc. -- think of it as personal bookkeeping. I last wrote about a similar platform for small businesses, Outright.com, and Mint is just as handy. Check it out.

Great Financial Site for Small Business Owners

If you're a small business owner looking to save your most valuable resources -- time and money, get to know Outright! This is a free and easy to use online bookkeeping platform that allows you to track your business expenses, income and cash flow. There is also an additional low cost tax service for filing 1099's - for $5 you can take care of each contractor your business hires and eliminate paperwork. Business Week, Wall Street Journal and New York Times are fans so check it out today.

Have a Plan and Stick to it

Why is it so difficult for people to come up with and stick to a plan? Whether it be for finances, business, fitness or some other need, doing so is apparently against human nature.

Coming up with a plan can be tough because it feels like a lot of work and it requires a change of operation and mindset. The irony is that having a plan actually saves you time because it creates efficiency.

Challenges to sticking to a plan involve not being fully committed in the first place, not having a specific timeline for implementation, and allowing external factors to derail us.

In my financial life I have a plan and am thankful for it. However, I do have a tendency at times to get derailed when my "now" urge fights with my prior plan. In my business life, I have a plan and am happy to report that I'm sticking to it. The problem is that this focus on business has led to a lack of priority on my fitness, something that is very important to me.

When you put your different plans into place, no matter how solid, having competing interests in your own life may very well be an impediment. I'm beginning to think that my high school French teacher was right -- equilibre (balance) is the key to most of life's challenges. When we put plans together, whether for finances, business or personal, we must be sure that they are not only realistic independently but in the context of each other.

Your *Actual* Entertaining Budget

So what was it? A month ago you were challenged to record your entertaining (not daily individual meal) expenses. Was the number lower, higher or just as you expected? For those in the lower or expected category, congratulations! Knowing your habits is the first step. For those with a higher figure this should be an eye-opening exercise.

Know that even your number is lower or as expected, it doesn't mean you're off the hook. There's not rule as to the entertaining part of your budget but it shouldn't be very significant if you're in debt, without an emergency fund and not fully contributing to your 401(k). (If it is, you're basically paying interest, taking on risk and forgoing retirement dollars to entertain!) If you're not in debt, have a six months stash of cash and contribute the maximum amount allowed to your 401(k) and IRA, then it will be your decision as to what is reasonable.

Every LMF4HMW reader can save money using these tips:
* think drinks instead of dinner
* entertain in private homes instead of at restaurants
* instead of funding a huge dinner party bill ask for guests to bring a dish -- not quite "potluck" but it absolves you of feeding a multi-course meal to a group

* host a wine tasting where each guest brings two bottles of wine -- the guest who brings the winning bottle will take all of the second bottles home (i.e., you're off the hook for party favors)

* think brunch instead of dinner -- less wine and courses involved

A Challenge and a Great Website for 1099s

The average LMF4HMW reader probably underestimates her dining out and entertaining spend quite significantly. Let's do a little experiment: write down your monthly estimate for this budget -- include restaurant spend plus what you buy for entertaining purposes in your home. (No peaking at bank statements!)

Now, put a note on your calendar to check this estimate one month from now (March 17). No need to include groceries for daily meals -- just those you use to entertain others.

I'm willing to bet it will be a lot more than you guessed. And I'll check back that week with some money saving tips to help you decrease these costs.

In the meantime, there's a wonderful website business for filing 1099s online, Outright.com. It is simple, fast and low cost -- only $5 per filing. This is a useful tool for small business owners as well as anyone who employs an independent service provider to the tune of more than $600/year. Filing electronically through Outright means you no longer have to mail in the paper form nor include the 1096. Check it out!

Day Trader versus Buy & Hold

This argument is essentially hare versus turtle. With day trading, the average individual often invests a lot of emotion and relies on "hunches" (theirs or those from "experts") to make a buck.

Day trading is for some people as tempting as a Lotto ticket or Vegas get-rich-quick weekend -- a tremendous psychological pull. It's faster paced and promises a much more exciting ride. The problem is trading costs and timing typically eat away at returns and relying on hunches and emotions is a proven route to buying high and selling low.

The bottom line is the old adage, "if it's too good to be true..." All of the commercials, email and websites promoting "hot tips" "new strategies" and "fail proof solutions" are just that. My advice is to allow yourself some fun if you're determined to day trade -- limit the value of this account to no more than 5% of your overall investments and realize that you no longer have a latte account in exchange!

Emerging Markets Primer

I've often written about the importance of diversifying your investments with international equities. There can be a tendency to have home bias because the companies or funds are more familiar and psychologically feel closer. Broadly speaking from the US perspective, international investments should include holdings from a variety of countries around the world. You can think of emerging markets as an important sub-set of the broader international scope even though in the investing world they're in their own category.

The term "emerging market" is to be taken literally -- it refers to countries whose business and social environments are in a dynamic state characterized by rapid growth and industrialization. Currently these include but are not limited to Brazil, Mexico, China, India, Russia and Eastern Europe and South Africa. In comparison, purely international funds might hold Western Europe, Japan, Canada and other more established countries.

Emerging markets tend to have higher highs and lower lows -- more volatility, given the rate of change and the fact that it can be more difficult to acquire market information. This means that for investors who may see phenomenal growth or big declines in one year, there might be a tendency to either overweight or avoid emerging markets all together depending on the market direction.

As with any investment strategy, attempting to chase returns is risky business. I recommend a buy-and-hold strategy of about 10-15% of overall holdings in emerging markets so that you have a balance. And of course since it's me, I prefer index funds given low overhead and other costs. MSCI's EEM is a particular favorite.

What You Shouldn't Live Without...

If you guessed health insurance, you are correct. In the grand scheme of things, I'd group life's needs into a pyramid: The first and most critical level includes food, clothing and shelter (including utilities). The second level contains health insurance, renter's or homeowner's insurance and disability insurance (but if you have to choose one it should be health). The third level includes useful wants like cell phones, car, gym memberships, cable/Internet, etc. The fourth and final level consists of fun -- vacations, wine and dine, special clothing, gear, gadgets and the like.

The problem is that too many people forgo health insurance. There are a myriad of excuses -- "I'm healthy," "I'm young," "it's expensive", etc. If you can afford anything in my level 3, you should most definitely have health insurance. (So if you have a car and cell phone but not health insurance, your priorities are very misaligned.) Obviously there are some who do not have the buying power to get past level 1 and unfortunately that is outside the scope of this post.

Most of us now receive health insurance through our employers, who are typically paying a surprising dollar amount to cover us. But it hasn't always been this way. During World War 2, employers started offering it as a benefit to attract employees and get around wartime wage controls. This can make it difficult to leave a company or lose a position.

If you are self-employed or not currently working, you need to find the best plan for you. In general, it's a spectrum -- the most flexible plans are the most expensive (think PPO) the managed plans are less so (think HMO) and high deductible policies, which cover only catastrophic problems (think hospitalizations and major diseases), typically cost the least. Different plans offer varying levels of services and have specific policies regarding co-pay, deductible, coverage, maximum out of pocket, and premiums.

The key with choosing the right health insurance is figuring out the best option for you given your circumstances including budget, health, and any pre-existing conditions and discussing the policy fine print. If you have a working spouse, it is often possible to be added on to his/her policy. If you are solo, you may be able to get discounts through a member organization such as the small business administration, a credit union, university, etc.

It definitely pays to shop around when researching health insurance. A good place to start is this site, which offers a range of plans for individual, family and small business shoppers. Make it a major priority to attain health insurance if you're one of those LMF4HMW readers who has a closet full of shoes but would be devastated by a hospital admission for a broken leg from tripping while wearing stilettos.

Disability Insurance Primer

Insurance. A less than fun topic with potentially debilitating consequences for avoiding it. Anything involving "what if" scenarios is tough given the normal human desire to avoid challenging topics and tendency to think that "it won't happen to me".

While uncomfortable, insurance discussions are both necessary and should provide a sense of relief given the act of creating a solid plan that answers those "what if" questions. Disability insurance covers you in the event that you become disabled and unable to work. Sometimes a disability is temporary (i.e., there is an illness or accident but recovery is possible); at others it fundamentally alters your lifestyle and ability to work in the future.

The main question to ask is could live without a pay check if you became disabled? And for what amount of time? For a reader who has a hefty trust fund or is supported by her husband's lucrative job, the answer is likely "no". (Although her husband should most definitely answer yes.) For many LMF4HMWs, however, disability insurance is a both a necessary evil and a very smart move.

The good news is that many employers offer a policy as an additional benefit. Sometimes it is automatic; at others you need to opt in. If you are covered, the next step is to figure out the amount of coverage, which is often less than you would truly need -- for example, 60% of your salary. With a supplemental policy, you can cover more, closing the income gap, but no policy will cover 100%. (This would remove any incentive to recover, right?)

Another important aspect of a disability benefit is the coverage time frame, which is typically a set number of years or until retirement. You should also figure out if there is a tiered system whereby you have short-term coverage for the first weeks or months and then long-term coverage, and what the payment differences are, if any. The amount of time for which you are seeking additional coverage will affect the policy premium, so if you have adequate short-term through work, there is no reason to double up with supplemental.

For the pioneering self-employed, the only option is an individual policy. You'll want to be sure it adequately addresses short-term needs, if any (perhaps you have cash savings which could cover these), and long-term benefits.

Below are some websites on which to do some initial research:
http://4-disability-insurance-quotes.com/
http://www.disability-insurance-update.com/

In closing, I may be pointing out the obvious, but the time to seek coverage is before there is a problem -- while you are healthy and working!

WINE PAIRING: How about a zippy Garnacha, A.K.A. "Grenache", the most widely planted grape in Spain and a major contributor to Rioja. With black fruit flavors and toasty notes common from oak aging, they are usually best enjoyed in their healthy youth.

Program Interruption...

DISCLAIMER: If you aren't mad when you watch the below linked video, you are seriously deranged. And may suffer from "over feeling syndrome", lack of logical reasoning, and general inability to separate ideals from reality.

This week I'm supposed to focus on disability insurance. While it's an important topic, I just can't shake one of the more stupid and shocking comments I've heard from a reporter in the last year. While driving to a meeting listening to Portland area's more conservative (yes, that's a rarity on the West Coast) morning radio show, a "financial reporter" commented that he "wasn't sure how to read the economy given conflicting data. He went on to offer surprise that "despite gains in the Dow Jones, housing foreclosures are at a high".

There are so many flaws with this report that I'm not sure where to begin. First and in general, economic reports tend to be backward looking -- i.e., they report on findings, or what has been viewed in the past, so therefore they aren't necessarily indicative of future performance. Second, he tries to base economic outlook on two uncorrelated measurements -- the DJIA, a poorly constructed index measuring performance of 30 stocks (hardly representative of the US economy), and housing foreclosures, a problem exacerbated by over zealous lending policies and... you didn't guess it... uber liberal policies that increased in the Clinton era but began years earlier... (FYI, I don't post this link as a political statement, just providing some background and another angle that by the way never was and never will be reported in the mainstream media).

As someone who has lived abroad in one of the world's more liberal countries -- France, I'm still dumbfounded on an almost daily basis when I watch French News and see a less biased, more fact-based reporting style in the media. Now I'm not blaming the US media for problems -- that's too generalist and doesn't recognize the good reporting that is done, but I am arguing that politically, we tend to have one view and that anything else is "fringe" and relegated to the Fox network.`

I'm not blogging as a politico but I am suggesting that we all take responsibility for the news and educate ourselves so that stupid, uneducated reporting -- whether it be on conservative, non-partisan, or liberal channels be recognized as such.

WINE PAIRING: Nada. we all need to sober up to this problem. Why is it that math, science, art and English are required but that someone can be graduated from high school and college without any financial education?!!

Life Insurance

I recently heard yet another story of a family's tragedy being compounded due to lack of life insurance coverage. In this terrible story, a father committed suicide, leaving his wife and son without a policy and piled high with debt. I don't want to get into a post about the morality of suicide, but I do want to use this example to highlight the importance of insurances in a several part series. Today's post is on life insurance.

A LMF4HMW reader may or may not have a need for life insurance depending on the stage of life she's enjoying. When I was single, without children and had no debt, I had no need for life insurance. (My 401(k) assets would have covered my debts and funeral costs.) Since I am now married (still no kids) and contributing to a household, I should consider a life insurance policy if my husband would suffer financially should I pass (i.e., his income alone wouldn't cover the mortgage, etc.). At this point it still doesn't make sense for us, but every situation is different.

The time to truly consider life insurance is when a family welcomes a child so that should the unthinkable happen, there are ample funds available. (There are exceptions if a significant amount of wealth has already been accumulated -- i.e., the child has a trust fund, but for most people that's sadly not the case!) Another case would be having a dependent who isn't a child such as a sibling or parent. There are a multitude of myths surrounding life insurance, one being that you "should get life insurance while you're young" since it's less expensive. While the statement is technically true, on this note I would have paid into a policy for the past 10 years which would have easily rendered any savings in my 30's moot.

There are two basic types of life insurance, whole and term. Whole is a combination of insurance plus an investment. Upon the death of the holder, the contract will pay the stated amount. The investment portion may be borrowed against or used in other ways. Term life insurance has a duration limit on the policy period and pays the amount unless it first expires. Some term policies will let you renew. The key with all types is to evaluate your particular situation and needs -- here's a good starter article.

Many insurance purveyors will try to sell you whole policy stating that having an investment plus insurance policy is a better benefit. The truth is that these are much more expensive policies and that insurance needs change over time. The key is buying what you need - not what someone is trying to sell you. For most people, term life insurance is all that is needed.

Dave Ramsey, a bright and straight-talking radio show host, has a website recommending endorsed local providers. Check it out and call someone this week to discuss your needs:
http://www.daveramsey.com/sa/insurance/

Next we'll cover disability insurance.

Another Mark of Brilliance!

"... Raising taxes at any time risks economic damage, but never more so than during recessions. Higher taxes shrink the return that investors and workers receive in exchange for their risk-taking, creativity, and productive efforts. So the inevitable consequence of higher taxes is less investment, entrepreneurship, and work.

During normal or booming economic times, growing demand from consumers -- and investors' eagerness to invest -- means that higher taxes are more easily endured. It's not that raising taxes even during boom times doesn't discourage some risk-taking and entrepreneurship; it does. But the general good health of the economy is often sufficient to swamp the ill consequences of higher taxes.

In bad economic times matters are very different. Businesses are losing customers and investors are sitting on the sidelines. Higher taxes, by cutting even further into businesses' falling profits, only fuel more economic pessimism. During recessions, there's no general economic vibrancy to balance out the profits lost to higher taxes. So raising taxes only amplifies entrepreneurs' and investors' pessimism.

Indeed, raising taxes during a recession likely does more than amplify producers' pessimism only for the duration of the downturn. By signaling to entrepreneurs and investors that the government is economically tone-deaf -- by revealing the government to be desperate to maintain its revenue stream even when many of the rest of us must struggle with reduced incomes -- raising taxes during a recession tells the world that the tax-addicted government is especially unfriendly to markets...

As the late Nobel economist Milton Friedman pointed out, 'No one spends someone else's money as carefully as he spends his own.'"

This sheer brilliance came from Donald Boudreaux in the Richmond Times Dispatch. I certainly can't say it better so I'll offer a brilliant wine pairing: a cool, crisp New Zealand Sauvignon Blanc, brilliant yellow straw color, perhaps with some lime green tints, and a refreshing taste of citrus, grapefruit and perhaps white flowers!

Want to Stimulate Job Growth?

THEN CUT CORPORATE TAXES! Who reading knows what the U.S. corporate tax rate is these days? Are you guessing 25%? maybe 30%? Wrong.

Next question: how high is our rate relative to other similar competitive and developed countries? Think it's comparable? Guess again.

Out of countries belonging to the OECD, the Organization for Economic Co-Operation and Development, the U.S. has the second highest corporate tax rate at 39.1% after Japan's 39.54%! Nearly 40% in taxes just to create jobs, goods and services!

Lots of talk these days about "stimulating the economy", but mostly action that is doing just the opposite. Keeping corporate taxes high, or disincentivizing job creation, for one. Interestingly, most OPEC countries, even the most socialist leaning, have been cutting their corporate tax rates. That, along with allowing ours to creep up, is how the U.S. ended up on the wrong side of the spectrum.

Further, there's lots of talk in our country right now about NEW taxes, and not so much about lowering taxes. Most often, the debate is about which sized "man" to tax -- the "big man", the "middle class man" or the "least advantaged man". Who's looking out for the very large companies that are paying the bulk of the taxes in the country (i.e., much more than individuals relatively)?!!

How can you continue to raise taxes on the very people creating jobs and ask them to create more? In the great words of Will Ferrell, "I feel like I'm taking crazy pills!"

Wine Pairing: Grab a Gruner (i.e., Gruner Veltliner) -- these crisp, citrus prominent Austrian white beauties are not only delicious, but support a country with a much lower corporate tax rate of 25%!

You Know it's Bad When the French...

are making fun of your tax policies! Today, I read an article in France-Amerique, "To promote tourism, the Americans want to... tax tourists".

The Travel Promotion Act of 2009, currently a Senate bill, would tax each U.S. visitor $10 and then use the funds to promote the U.S. as a choice tourist destination. To help them, since I'm a marketing professional, I've offered a complimentary sample advertising campaign below:

Scene imagery: Goofy, fat American in jeans and tennis shoes pictured at one of our finest cuisine destinations, a drive-thru.

Copy: "Hey all y'all foreigners, we really want your tourism dollars, so please come visit! Be sure to speak English 'cuz if you don't, we'll just talk louder. Also, try not to be shocked at how big we are -- we're not fat, we're just big boned.

You're going to have so much fun here. Oh yeah, one more thing -- we've designed a program to promote our country that, well... you're going to pay for. See you soon! "

This is like me invoicing my clients for my marketing and promotional costs. Very, very stupid. Shocking, in fact. What could possibly be more stupid than taxing the very tourists you're trying to attract?!! The only explanation that I can muster is a "miscommunication." Perhaps the conversation went something like this:

Senator X-D: "My constituents are suffering decreased business and civil revenue due to a decline in tourism. We should figure out a way to increase tourism... so I can get re-elected. Uh... did I say that last part out loud?"

Senators Y-D, Z-D, A-D and B-D: "Yeah, we just heard our favorite word, 'increase'! This is perfect: we can raise tax revenue without taxing our constituents! What could be wrong with that?"


I love how the article author writes (translated, of course), "The US Travel Association doesn't find it ironic that it's trying to finance a campaign with dollars from the very people it's trying to attract. Instead, it insists that other countries are doing it so they should, too." Did anyone actually determine if this worked in those countries before proposing it? Possibly consider offering any value-add to those coming here? Here's the scarier question: do they even care?

I smell yet another typical big government, big spending move to create yet another office employing people who aren't compensated based on performance. They just spend -- they don't have to create a budget and likely have no accountability for results.

Bottom line: I stand by my recommendation that all running for office (i.e., using our tax dollars) should have to have taken and earned an A in accounting, finance and economics before becoming eligible.

Wine pairing: French rosé, of course! It's hot and this is the perfect summer sipper. Pair it with some olives, Parmesan cheese and a pretty sunset.

Business Meal Tax Deduction Increase - Bill Introduced

There is potentially good news for small business owners and the restaurant and travel and tourism industries. Yesterday, Representative Neil Abercrombie (D-Hawaii) and Senator Daniel Inouye (D-Hawaii) introduced a bill to increase the business meal tax deduction to 80% from its current 50%.

Doing so will allow business owners to gain back more of this tax break which before 1993 was fully deductible. The bill is especially important for small businesses, who often use restaurants as mobile "offices" since many work out of their homes (some 52% including me). Furthermore, it will stimulate much needed economic activity in two sectors that have been hit hard by this tough section of the economic cycle.

Why should a LMF4HMW reader care? It is important to remember that small businesses, defined by the US Small Business Administration as having fewer than 500 workers, employ more than half of the private sector. These firms have generated 60-80% of the jobs created in the last decade. And they represent nearly 100% of the businesses in the U.S.!

Besides, people get tax credits for having kids (assuming they don't "make too much money). As long as we have this system (I'd vote for an across the board 10% flat tax where we do away with all deductions, thousands of forms and the majority of the expenses of running our current set up), we should be figuring out ways to help small business, not tax them out of business.

Your Biggest Asset and Foe When Dealing with Matters Money

Any guess as to what it is? Whether you have a high paying job? Trust fund? Good or bad childhood? Nope! It's your ATTITUDE.

I just read a truly shocking article about an ex-accountant (see picture) who stole millions of dollars from her employer winery in Canada. During the trial, she had the audacity to blame the winery for allowing her to do so given her gambling addiction and alcoholism. She even blamed the casino for allowing her to gamble!

Wow. Disgusting. Yet so prevalent in less malicious forms in our society given the move away from personal responsibility and toward entitlement. Her lawyer argued she should be excused given her issues. I argue she should be held fully accountable and given extra punishment for blaming everyone but herself.

So how does this relate to the point I'm proving? This woman chose to steal, lie and blame. Many other people choose to ask for help or simply stop being jerks. With matters money -- just like everything else in life, how you operate is largely a choice. You can choose to have a less emotional, more planned approached to the way you spend and deal with it. Or become a victim full of excuses who refuses to plan and then complains about things "happening" to you.

Instead of spending time worrying, complaining and stressing, I urge you to choose to confront your financial situation head-on in a business like matter. This is what I've been blogging about for nearly two years -- creating a plan, sticking to it, and working towards continuous improvement. While this does force you to take personal responsibility (likely my most treasured value) for your financial situation, it also frees you from the negative forces of "things happening". And the very good news is that if you face life like in this manner, you won't have problems quitting smoking, exercising, eating healthy and accomplishing the things you set out to do.

Each day we make plenty of choices. Make yours mindfully and then accept responsibility for your actions, financial and other.

Wine pairing: pick a bottle that's on sale made from a grape you've never tried before.

A Super and Simple Idea for Congress

STOP SPENDING BEYOND YOUR MEANS!!!!!!!!! (And then moping about it and blaming the rich.)

Why is it that so many businesses and individuals are able to self-regulate? Revenue and income goes down, spending decreases. Revenue and income increases, spending can increase.

I'm so unbelievably tired of all of the dire talk about "our economy in the toilet". Ever been to South Africa and seen a shanty town? Visited Mozambique, Ethiopia and Chad? Or hell, lived in Europe and paid over 50% in income taxes?

I'm still seeing people out and about -- fat (i.e., overfed) people, mostly, which is another post entirely but with a similar theme of moderation. I'm not saying it isn't "tough"out there, nor do I dispute the data regarding employment figures. My point is is a broader, longer-term societal thought.

Has anyone ever read a history book? Studied economic cycles? Bothered to think about the fact that the economy isn't a linear and positive trajectory?

I'm not arguing that things aren't tougher. My point is that the U.S. is still a damn fabulous country. I also have a few ideas that can very simply and cheaply save our country money:

1. Put a cap on medical malpractice lawsuits. (I'd rather send all ambulance-chasing "attorneys" to Mozambique or even Spain, but then we'd have to foot first-class tickets.) This is the elephant in the health care room. Physicians already have to spend about $200k NOT INCLUDING college to become licensed. It takes 10+ years from 18 to become a doctor. These folks didn't get in the business to be sketchy. No one ever said medicine was math. It doesn't always work out. This will decrease health care costs and prevent the USG from trying to make things "fair" (see thinking in idea #3 if you're skeptical).

2. Make health insurance like car insurance. Not dealt with or sold by employers or the government. Just something required and with private companies providing choices. If you want a higher deductible and lower premiums, great. If you smoke or choose to be obese, you pay more. If you choose not to pay for it and have a "lifestyle", then there are consequences. (Those truly in need can go with a temporary government style plan akin to Welfare or unemployment, with an expiration date, of course.)


3. Create a flat tax system of 10 or 20%. Period. Then be done with it. No more thousand page IRS docs. No more arguments about fairness and what is and isn't middle class. Or deduction after deduction after deduction. Why should people who rent be penalized? And why should people who have child after child be incentivized? The USG can't even adjust the AMT rates for inflation or cost of living index, so they shouldn't be trusted with defining "middle class". Everyone pays the same percent. Those with more income pay more. As fair as can be.

4. Make serving the USG an honor. Not a career. You serve a term. And you get back to doing what good Americans do -- contributing to society in something other than taking tax-payer money legislating for a "living". No black-tie affairs. No jets. No pomp and circumstance. US taxpayers should not be charged with paying for government parties. If they want to have a party, they can pay for it out of their own pockets. This is not a private company with profit and loss responsibility -- it's a "firm" that takes more money when it's losing.

5. Create incentive-based pay for government employees. Ever been to the Social Security office or post office. Enough said. Or hell, go out on a limb and PRIVATIZE everything.


Happy 4th of July! I urge you to be POSITIVE. Since sentiment also drives the market we can all do our part in taking off the party-pooper hats.

WINE PAIRING: South African Chenin Blanc.

The Dow is falling! The Dow is falling!

The obsession with the Dow Jones Index is ridiculous, much like Chicken Little's gloom and doom view about the sky and it's trajectory. The media loves to spout off reports "on the 10" regarding its every movement: "Up 2.. down 288...big gain of 100... big loss of 220..."

The wave of numbers is never ending. And it's quite common to get the movement without the total number. If the Dow Jones was 100 and it lost 50, this would be a major movement. But if it's at 10,000 and loses 50, not so interesting.

More importantly, the Dow Jones is a poorly constructed index. It is based on the trading

prices of the 30 included companies. 30. Thirty. Hardly representative of the US stock market! Five hundred companies. Furthermore, the companies trading at higher prices have a greater relative effect on its performance. Regardless of the number of shares outstanding.

A better index for measuring US stock performance is the S&P 500. It is comprised of the largest 500 equities and is based on market cap weights. This means companies are given weight based on how many shares are outstanding -- not the trading price.

The media's not too interested in delving into the S&P -- it is trading somewhere around 900 these days (versus the Dow in the 8,000 range) so the reported numbers are smaller and therefore much less interesting.

Making Money

With investing, the amount of money you make is your return -- i.e., your personal ROI or return on investment. When looking at your portfolio over a specific period of time, your amount of gain or loss constitutes your rate of return. It's rather obvious that we all want a higher rate of return. What may not be obvious are some of the factors affecting your actual or net rate of return:

1. Defining that period - some of us are as obsessed with our return fluctuations as we are with our weight. The majority of us don't need to look at our investments, especially those set aside for retirement, much more often than once or twice a year to monitor and rebalance. That's because the best practice is set a strategy of buy and hold. Daily Dow Jones fluctuations make for talking head fodder and not much else. (In next week's post I'll explain why the Dow is not even a good index.)

2. Factor in expenses - this is one of the primary reasons I'm an index fund lover. If your overall rate of return was 10% but your asset manager charged you 3%, you actually only booked a 7% gain. And if you're holding a taxable (i.e., not a retirement account), any trading you do increases this number as well. Yet another reason to buy and hold. (If you don't believe me, have you ever heard of a guy, Warren Buffet?)

3. Account for inflation - From the example above, the 7% return is truly 5% if inflation rose 2% during the year.

4. Benchmark - it's important to define your benchmark so you have something against to gauge your success. A 10% return sounds great, but if your benchmark index returned 15%, you're actually lagging. The beauty of index funds is that the index itself becomes the benchmark. Since you're guaranteed to perform as the index does net a small fee, you'll always be on benchmark.

WINE PAIRING: For some reason a rosé just seems to have a fantastic rate of return. They're rarely more than $20, many between $10-15, and offer a refreshing bang for your buck. I associate rosé with warm days, sunsets and fresh flavors. They're best enjoyed chilled, outside and with some nibbles like olives, nuts and Parmesan cheese. There are some absolutely delicious Spanish rosés, typically made from Garnacha (Grenache). Try one!