General

[Runamok]

Runamok plays paintball for almost 15 years, at least twice a month, not counting paint ,air, gas to and from,Knee surgury, Runamok has spent the annual income of a mid size company on parts, and now has amassed 8mags, 3 sterlings and an led angel. But MAN!! Ive had a good time going broke.
O! lets not forget the after game beer w/ friends and the ones while working on the newest project gun. Since this all started with a mixed drink or two.

[bellicose]

The whole point of working in the first world is to make money to spend it on things to make life enjoyable. Sure, you can save money, and you can have a good time without spending money (as long as you don't have expensive hobbies...none of us on this site), but you can do both if you work it out right.

[CJOttawa]

I didn't mean to pick on booze specifically, nor I think did the authors. Everyone has certain little pleasures they'd rather not give up. Having twenty of them though - which many people do - is financially draining.

Originally Posted by desertT1

Who the hell is getting a 'conservative' 5% interest rate?

The S&P500 returned 13.4% last year and the Russel 2000 (small & mid cap) 14.7%. Buying index (mutual or exchange traded) funds would have netted excellent returns.

Average return of developed markets since the year 1900: over 9%.

The Bogleheads wiki is my financial guide: Getting Started - Bogleheads

[elraido]

Originally Posted by CJOttawa

I didn't mean to pick on booze specifically, nor I think did the authors. Everyone has certain little pleasures they'd rather not give up. Having twenty of them though - which many people do - is financially draining.



The S&P500 returned 13.4% last year and the Russel 2000 (small & mid cap) 14.7%. Buying index (mutual or exchange traded) funds would have netted excellent returns.

Average return of developed markets since the year 1900: over 9%.

The Bogleheads wiki is my financial guide: Getting Started - Bogleheads

It had a return of 13% because it is finally getting back to a point where it was 5 YEARS ago. That isn't the average return per year. Also the markets may have increased 9% over that time, but that also requires knowing what to invest in. Not knowing can make you lose all your principle, or you can pay a firm to manage it for between 1-2%. And then it isn't guaranteed either. CD's are at a pitiful rate as well, even for 60 month cd's...most of the time around 2%. While people often tote 5%-10%, the more believable (and safe) number is 2-4%. Anyone who quotes 10%+ yearly, I equate to Berni Madoff. Then again, my return last year was about 14%. But I figure that is going to be an outlier on my chart when it is all said and done.

[WilD]

Saving money is all fine and good, doubly so if you are a person who feels pleasure in seeing big numbers in his accounts. However, you've got to spend it eventually, or saving it was pointless from the start.

If you are saving for a big goal, or living in debt, it makes sense to forgo some pleasures to get your financial house in order. On the other hand, if you have ample cash, why not spend some portion of it? It sure would suck to skip the after dinner cocktails you love for 37 years just to get run over by a bus while walking to the sportscar dealership to spend the proceeds. Each of us has to find a happy middle ground.

[Lohman446]

Why I spend money:

Because me not spending money would eventually result in that mental breakdown which would either find me with a tremendous amount of money spent in lawyer fees, prison costs, and or in patient psychiatric care.

Couple that with my belief that the dollar is overvalued and its purchasing power will crash and you can understand why I do not save money.

That being said as long as your goals align with your actions and you are aware of the costs of your actions do what you want with your money. However a lot of times these exercises in "statistics" are optimistic and depend on returns that are not realistic. They further discount concepts such as inflation and use "durable consumer goods" rather than inflation involving things like food and energy costs.

[desertT1]

Originally Posted by elraido

It had a return of 13% because it is finally getting back to a point where it was 5 YEARS ago. That isn't the average return per year. Also the markets may have increased 9% over that time, but that also requires knowing what to invest in. Not knowing can make you lose all your principle, or you can pay a firm to manage it for between 1-2%. And then it isn't guaranteed either. CD's are at a pitiful rate as well, even for 60 month cd's...most of the time around 2%. While people often tote 5%-10%, the more believable (and safe) number is 2-4%. Anyone who quotes 10%+ yearly, I equate to Berni Madoff. Then again, my return last year was about 14%. But I figure that is going to be an outlier on my chart when it is all said and done.

That was pretty much my point. I manage the 401k's for me and my wife. They were both up ~13.2% last year, but I don't expect that to happen year over year. And, I look at that as investments.

If I'm getting interest, it is in a safer location. Those safe locations are not getting 5%. If one is, let me know.

[MaD]

I don't think cj's underlying message is a bad one. While maybe a bit too specific, it's a good thing to think about especially in relation to long term goals. There are plenty of small luxuries that make life more enjoyable. The underlying message though is just to think about all of the small choices and look at how they add up over time. Minor adjustments that save you a dollar or two a day can add up to large amounts over time.

In some cases you don't even need to sacrifice anything. An example... you eat Taco Bell for lunch every day (because you just can't live without it). You get a medium drink which is $1.49. You have a vending machine at work that sells 20oz's for $1. Buy your pop there instead.

A few small adjustments like this and you're saving a few bucks a day... or as I like to call it an entire mortgage payment (over the course of a year)...

I have to agree on the market percentages.... still, any time your idle money is making any money at all is a good thing. It's the losses that I hate.... Damn AAPL... would have been better off with that $ stuffed in the mattress....

[CJOttawa]

Originally Posted by elraido

...the markets may have increased 9% over that time, but that also requires knowing what to invest in...

The safe bet is to diversify broadly - domestic equity (US if you're a US citizen, Canadian if Canadian etc) and foreign equity (MSCI EAFE covers Europe, Australasia and the far east) as well as domestic bonds. There's no guessing involved.

Further reading: What Are Normal Stock Market Returns?
https://www.credit-suisse.com/invest...s_yearbook.pdf

Originally Posted by MaD

I don't think cj's underlying message is a bad one. While maybe a bit too specific, it's a good thing to think about especially in relation to long term goals. There are plenty of small luxuries that make life more enjoyable. The underlying message though is just to think about all of the small choices and look at how they add up over time. Minor adjustments that save you a dollar or two a day can add up to large amounts over time.

In some cases you don't even need to sacrifice anything. An example... you eat Taco Bell for lunch every day (because you just can't live without it). You get a medium drink which is $1.49. You have a vending machine at work that sells 20oz's for $1. Buy your pop there instead.

A few small adjustments like this and you're saving a few bucks a day... or as I like to call it an entire mortgage payment (over the course of a year)...

I have to agree on the market percentages.... still, any time your idle money is making any money at all is a good thing. It's the losses that I hate.... Damn AAPL... would have been better off with that $ stuffed in the mattress....

Yes on all of that - except the money in the mattress part. Money under the mattress loses value at the rate of inflation. At least with a mix of bond and equity index funds, you're assured the market return.

Originally Posted by desertT1

That was pretty much my point. I manage the 401k's for me and my wife. They were both up ~13.2% last year, but I don't expect that to happen year over year. And, I look at that as investments.

If I'm getting interest, it is in a safer location. Those safe locations are not getting 5%. If one is, let me know.

The idea is to build a portfolio of diverse asset classes (broad bond and world equity indices) that has a higher risk adjusted return.

An individual equity (Apple, RIM etc) might be able to deliver a high return but at extremely high risk.

With a diverse equity index fund, the return may be lower but the risk is lower still, making the risk adjusted return higher than the individual stocks.

It took me a while (a year of reading, starting with the entire Bogleheads wiki) to get this. It's the central precept of Modern Portfolio Theory.

http://en.wikipedia.org/wiki/Modern_portfolio_theory

[The Inflicted]

If someone knows where to get a 5% return on an investment as small as $576 I'd love to know.