Living happily... and simply?

There was a good article in NY Times today about people discovering their true happiness through simple living and spending most of their money on what makes THEM happy.

As in my previous post about "liquid life", it seems that the tide has turned and more and more people discover that "stuff" doesn't make them happy.

The whole notion, once a very underground and "subculture" type is now getting traction in such well-know publications as NYT. Corporate America is also taking notice and is adapting their sell pitches accordingly.

The only "stuff" that might contribute to your happiness is actually sports equipment - golf clubs ( I don't play golf, but I do know Costco sells them!), fishing rods and surf boards (can get one used for not so much money). What really makes us happy is money spent on our experiences, be it around the world tour or a backyard "staycation"

What I hope will start happening to us is that we start asking ourselves this trivial, but hard-to-really-answer question "what truly makes me happy?". For a lot of us, it will be "vacation".

So what's a point of getting that shiny Bimmer and paying for it through the nose?

http://www.nytimes.com/2010/08/08/business/08consume.html?src=me&ref=business

Taxes and doctors

Today there was a very good op ed in the Wall Street Journal about actual observed drop in tax receipts while raising taxes on the wealthiest. ( one of the examples being John Kerry who bought a $7 mln. yacht not in his own state of Massachussetts, but in RI whereby saving in exsess of $500,000 in taxes). The reason being that wealthy people have so many "advisors" that they won't pay those taxes anyway.
I was thinking about the doctors, who , by enlarge, make just enough money to be fleeced by uncle Sam because they are "rich", but usually not nearly enough to do the "creative" tax reporting by using those financial/tax/legal/estate etc. advisors. In the end, they probably end up paying for the poor, who completely depend on the government (i.e. taxes) and the truly rich who are smart/savvy/well connected enough to avoid paying those taxes...

401k pains, part 2

At my (almost) new job, 401k is handled by a private company. Not that their mutual funds are atrociously expensive (they are, average expense ratio is about0.4%), but these guys also charge 0.1% management fee on all the money under management.

Most doctors will be fast asleep if your start talking "expense ratios" to them. No wonder they are oblivious to the fact that, if you believe the Wall St. gurus, the market returns are about 8% a year in a very long run, they are loosing 6 to 7% of these money- no, much more if you counting compound interest- it'll be close to 10%.

The other thing worth mentioning is that even those doctors who were entrusted to make decisions for the whole group about their 401k know very little about money in general let alone investing.

I heard one of the "seasoned" members of the fringe benefits committee seriously suggesting to "just select the best mutual funds out there and just invest in them" My humble statement that, in the long run, statistically speaking, half of the mutual funds' money managers will fail to keep up even with the average market returns, and it's close to impossible to predict which funds they are, was met with dead silence. When doctors have nothing to say....

401k pains, part 1.

Now, what I wanted to write about for a long while but didn't have time to do:the 401k for those lucky (or unlucky) enough to have one (unlucky because it usually means working for a paycheck).

Anyways, I was once ( in a very recent past) a member of the fringe benefits committee for our small group. As it turned out, you always need a broker between you (i.e. , doctors' group) and a 401k provider ( Vanguard, T.Rowe Price, Principal etc.). Always. Now, this broker (obviously!) has to be paid, even though he/she doesn't do ANYTHING for your group other than being on record.

As it turned out, our broker did not produce a single piece of paper or a statement or a letter or a recommendation to add or drop a mutual fund in 10 years of being our broker, all the while being paid $70,000/yr.

Once we discovered it, they were immediately fired while a new group recruited. Bye-bye $ 700,000....

Liquid life

Recently I saw this wonderful presentation on ted.com about the new economic reality and new business and consumer trends. Although business in nature, this presentation really struck cord in me, especially when it came to a concept of a "liquid life" ( no, it's not a liquid lunch for you college frats)

This new emerging phenomenon has something to do with people realizing that there's no intrinsic value in "things" ( i.e. houses/cars/that new set of golf clubs etc.), and choose to lead the things-free life, being ready to move to new, better and bigger... not things, but opportunities unencumbered by huge mortgages and deep entrenchment in your particular place of work or residence. This emerging class of people believe in liquidity of their life and money.

And (I would add ) it would be increasingly difficult to sell these people the good old Wall St. notion of giving someone all of their actual hard-earned "retirement" money for 30 years for the promise to be "prepared" for the old age.

Most doctors I know are far from any kind of unconventional thinking, so I won't expect this idea to grasp most of us any time soon.

Time will tell..

Will be happy to know your thoughts on that.

More on traditional to Roth IRA conversions

So, Happy New Year to everyone! It's 2010 now, which means we can start converting our traditional IRA's to Roth!

Now, one more thing I found on these conversions- you may be able to "re-characterize" your newly converted Roth IRA back to traditional within the year after the original conversion.

Why to do that?

Suppose you had $10,000 in your traditional IRA, which you funded tax-free. Upon conversion, you'll owe your going rate (28-32% or whatever your tax bracket is) on this converted amount.

Suppose now, that within a year your original 10k dropped in value to 8k. Then you can do "re-characterization" of your Roth back into traditional IRA to avoid paying taxes on already depreciated asset.

Some authors even advise to create several Roth IRA's and transfer each kind of assets

( US large, US small, emerging markets, bonds, etc) into a separate Roth IRA. That way, you can see what depreciates ( hopefully none, but you never know), and "re-characterize" it, leaving appreciated assets in their respective Roths.