Common Cents # 39 - The Stock Market

 

The Stock Market

 

A lot of people are wondering why the stock market is hitting all-time highs while the overall economy is struggling. The short answer is that the stock market is not an indicator of what the economy is doing, but rather a predictor of what investors think it is going to do. In other words, a strong stock market does not mean the economy is doing well, it means that most investors think it is going to get better.

This is a reasonable position. The world’s economy has been devastated by a worldwide pandemic. As tragic as this has been for thousands of people, by definition, this is a short-term problem. Throughout history there have been pandemics, plagues, hurricanes, floods, earthquakes, and locust infestations. None are indictors of systemic problems and they all had a start and end date. We know that this pandemic will be over sooner or later, and with thousands of people being vaccinated every day, it will hopefully be sooner than later. The best guess is that the pandemic will be over when at least 75% of the population has been vaccinated or has recovered from the virus. This will likely happen sometime this summer. Investors look months ahead so there is plenty of reason for optimism.

Furthermore, investors like stability. With the election behind us and what is hoped will be a stable government ahead, it should be a comfortable time for investors. Buying stock is putting our hard-earned money into somebody else’s business. No one wants any surprises. For that reason, the business community has leaned toward conservative politics. But more than that, they want predictability and fair treatment which comes from professional government and solid decision making regardless of which party is in power.

For individual investors, this would appear to be a good time to invest because bank interest rates are near zero and the long-term expectation of economic growth is very positive.

My wife and I set up a TD Ameritrade account this week and moved a little money from our bank savings account that was not really not making any interest into a mutual fund that we have followed for many years and had good experience with in the past. This was one of the decisions that came from our New Year’s Day Annual Meeting. It was as easy as opening a bank account. The minimum initial amount was $250 so a person doesn’t have to be rich to make good investments.

The new year is always a good time to look at how we spend, save, and invest our resources.  Seeking out good counsel is always a great idea to help achieve a great and exciting financial future. Then, take action to make the hopes and dreams come true.

 

Common Cents # 38 - Retirement

 

Retirement

 A common discussion at our house is how much longer we are going to work on a full-time basis. My wife and I are both in the 15% of the population that are over 70 and still in the workforce. Of course, there is no law nor any requirement that we should quit working just because we attained a certain age. And just because we are no longer working at our current occupation, we may not consider the new opportunities we have in front of us as retirement from an active life.

There are some arbitrary numbers out there. We became eligible for Medicare when we turned 65 which means that we don’t feel the pressure to work at a job that provides health benefits. It is possible that the government will lower that age in the future because it causes a barrier for those who wish to retire earlier and then have to pay very high premiums for individual medical insurance. For many, they continue to work for an employer perhaps doing work that is not as satisfying as it once was simply to cover the cost of health benefits.  Medical care costs usually do rise as we age even if we can maintain good health.

We became eligible for full Social Security benefits at age 66. There is plenty of discussion about when to start taking Social Security because the monthly amount received goes up if we wait to as late as age 70. Generally speaking, I believe that the best idea is to start drawing Social Security at full retirement age and invest any received that is not needed to live, but that decision varies for each person based on their specific situation.

But those are just technical issues. The bigger question is, “What would I rather be doing?” If our self-worth and social life are connected to our job or profession, there may be no good reason to quit. There are plenty of people who continue to work at their chosen profession well into their 80’s and older. Dr Anthony Fauci, the infectious disease expert, just turned 80 and has accepted a new role in the Biden Administration.  He is in remarkable health and is obviously providing a great service based on his expertise and years of experience in his field.

If there is something we would rather be doing and we can afford to do that when we are 58, by all means we should do it. The point is, we must not let arbitrary numbers like 62, 65, 66, or 70 control the decision.

A few years ago, I wrote a book titled, “The Fourth Quarter” for people who are in the fourth quarter of life. We don’t head for the showers in the fourth quarter of a football or basketball game, we keep playing until the final whistle. Why should we live our life any differently?

For a copy of the book, “The Fourth Quarter,” go to: MathisBooks.com

Common Cents #37 - eBay

 

eBay 

About 25 years ago, I was in my brother’s office when he asked me if I had seen the new online auction site, eBay. I hadn’t so he gave me a quick tour about how easy it was to list things and bid on other people’s listings. After a few minutes of observing the site I exclaimed, “This changes everything! Everything is now liquid. Anything can be sold and converted to cash in a week using this global marketplace.”

My dad was an auctioneer and I had grown up, literally, in a sale barn. I knew that an auction was the fastest way to sell a lot of stuff in a short amount of time and that the exact fair market value of an item, at that particular time and place, could be determined in seconds. I realized the potential of a world-wide market, an auction, particularly for antiques, collectables, of hard to find or hard to sell items.

I immediately set up an eBay account and started selling things. Over the past twenty-five years I have sold thousands of dollars of merchandise, mainly antique cameras and collectibles on eBay. Things that we thought were extremely rare or unique, turned out to be rather common on the world stage. An item that we had never seen before in Kansas might be a common item in a Paris Flea Market, for example.

It is also possible to get a pretty accurate idea about what something is worth by watching the eBay auction prices. Remember that an auction will determine the market value based on what a willing seller is willing to take and what a willing buying is willing to pay, not what one party thinks it is worth.

My experience is that eBay is best suited to items worth at least $25 but not more than a few hundred dollars and items that can easily be shipped using UPS. About a fourth of my sales have been international. I could never have sold an antique camera to a customer in Japan without eBay or a similar international marketplace.

There are people who make a living buying at garage sales and selling on eBay, but that requires a lot of knowledge of the market and a huge amount of patience. A better idea is that before you put your old stuff on the sidewalk, do a little research using eBay to see if you have anything that a collector might want to pay good money for. Collectors’ legends are made up of garage sale finds that were later sold for thousands of dollars. I know people who have done that, but I haven’t traipsed through enough garage sales to do that. If we do see something of great value at a garage sale, the honorable thing to do would be to tell the seller or at least offer them the fair price for the item.

Most eBay aficionados start by buying and later turn to selling. Personally, I think selling is more fun. Whatever, if you are not familiar with eBay and have some family heirlooms or other things that might be of value and you are ready to turn them into cash, check it out.

 

 

Common Cents # 36

 

All of us need money to live in a modern society. There are several ways to make money. The most common way is to sell our time. “I have eight hours today to spare. You can have it for $15 an hour, $120.00.” To make more I need to work more hours or convince somebody that my time is worth more.

We can also sell our skill or perhaps a special ability that somebody else needs. For example, I might need to have my automobile repaired, or maybe I need to have a cavity in my tooth filled, or perhaps a surgical procedure completed. In that case, I am not paying someone for their time as much as I am for a specific skill. That person might make hundreds or even thousands of dollars an hour, except neither they nor us look at it that way. They are paid for their skill or knowledge. In this case they can increase their income by increasing their skills.

Both of those methods of making money require us to be there and do what is required of us. Eventually most of would like to do less or even do nothing and still have enough money to live well. In that case we need to own some things that will get up every day and go to work for us. We need to put our assets to work.

We call those types of things investments. If we don’t have any investments, we will need to work every day of our lives to earn money to live if we need more than Social Security will provide. It is that simple.

Beginning in the 1930’s the government began making some investments for us in this system called Social Security. Social Security is not an investment as much as it is “Old Age Insurance.” Many people have some sort of investments through their employer with a 401(k) or other pension plan. But the vast majority of us should be making investments of our own on a regular planned method in addition to any employer-sponsored accounts we qualify for.

The secret to financial peace and not having to worry about money is having your money in investments that do their share of the work. There is wonderful calculator on the internet that will tell you exactly how much you need to accumulate to have the kind of income you want, based on how long you think you might live, and the return you expect from your investments. It is: https://www.bankrate.com/calculators/investing/annuity-calculator.aspx. Plug in the numbers you know, or your best estimate, and the calculator will tell you the other number. For example, if you know how much money you have, how much money you need per month, and the rate of return that is expected, the calculator will tell you how long the money will last. This is a great tool to use to see how you are doing. Have fun!

 

 

Common Cents # 35 - Year End

 

Year end

 

As 2020 draws to a close, there are a few things we can do to ease into the new year. I like to make a folder or large envelope labeled “2020 taxes.” In the next few weeks, we will be getting W-2s, 1099-INT, 1099-Misc, 1099-SSA – Social Security statements, charitable giving receipts, and a brand new one this year – 1099-NEC.

1099-NEC stands for “Non-employee compensation.” If you got paid for work where you are not an employee, you will likely get a 1099-NEC. All of these things go into the folder for 2020 tax prep. When we are confident that we have everything, it is time to do the tax returns.

If we are reasonably competent and all of our income is reported on W-2’s, we work and live in the same state, and we have minimal deductions, we can probably do our own taxes online.

If there are complications that add to the complexity of the return, we may want to consult a tax professional. Typical complications are multi-state income, K-1 income, self-employment income, retirement account roll-overs or unusual distributions, and so forth. Don’t fret over taxes. There are H&R Block and other retail taxes services all over the country that do millions of tax returns just like yours every year. Don’t wait until April 13 to begin looking for the papers you will need to complete your return. 

In addition to preparing to do the tax return, my wife and I have our annual planning meeting on January 1 of each year. We bring our dreams and plans, as well as the net worth or balance sheet from this year as well as the past few years to see how they compare one year over another.

We forecast, as best we can, what major expenses we will have. This year we bought a new car, last year it was a furnace, and few years before that, an air conditioner. Mainly we make sure we are still on the same page as far as hopes and dreams are concerned. One of us doesn’t want to be dreaming of a new house while the other is digging in to stay forever.

The January 1^st planning day is when we plan vacations, determine days off, as well as any other major decisions. This year will be different because most of 2020 plans got cancelled or rolled into 2021. Plan, but be flexible is what we learned this year.

If you are a “family of one”, this exercise is still valuable. If there are children in the family, include them in the planning meeting to hear their hopes and dreams for the year ahead.  Vacation planning and family purchases should include everyone involved. Everyone should have a voice and a vote.

Most of us will be glad to see 2020 go, but we should still pack it up neatly and put it away in an orderly manner so we are ready for an exciting new year of life.

 

Common Cents # 34 - Little Things

 

Little Things

In Shawn Kinkade’s blog a few weeks ago he said that “How we do anything is how we do everything.” In other words, our operating mode is consistent through all aspects of our lives. One example he gave is the person who is consistently behind on their personal bills or can’t keep track of their bank balance. If that person starts their own business, their chance of success is limited if they are not able or willing to track their company’s financial health.  If they are not going to immediately change their way of doing things, it would be nearly impossible to retain competent employees and keep the business accounts in order. Small things must be in order before we move on to larger endeavors.

In Luke 16: 10 NIV, Jesus said, “Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.”

Children learn by being given small chores or a small allowance to gradually increase their experience with responsibility. By the time they reach adulthood they should be capable of handling adult responsibilities. But we can do the same thing with our own disciplines when we realize that we are not handling situations in a way that translate to greater responsibilities that we are preparing to come our way.

As a young person I intentionally bought modest cars because I wanted to test my responsibility and maintenance skills. I learned about car polish and buying tires and all of the other things I needed to know not only to be a responsible car owner but to get to school on time. I worked up to more expensive or sophisticated cars, not just because I could afford them, but because I believed I was ready to be the owner of this kind of car and I was fairly confidant in my ability to make good maintenance decisions for the vehicle.

In our personal finances we can do the same thing. We can buy a few stocks or put a small amount of money in a mutual fund just to see what result is achieved. We would not put all of our savings in the stock market if we have never made those kind of investments before. We start small and build on what works.

If you are longing to start your own business, develop a realistic business plan and seek the best counsel from as many experts as you can find in that field.  Consider the value of starting small to confirm the business plan’s merit. Businesses grown from scratch have a much better chance of being successful in the long-term than those that are started with a bunch of somebody else’s money.  Avoid debt.  Avoid debt. Avoid debt.

I started in the photography business in 1973 with a basic darkroom, a Canon F-1, and $600. I started making money the first month and within a few years it was a very successful business. I never borrowed money for the business. Even though I did not know the verse from Luke at the time, it turned out I was faithful with a little and was given more.

It appears that Shawn Kinkade is right, “How we do anything is how we do everything.”

Common Cents # 33 - Putting Away 2020

 

There are just a few weeks left in 2020, time to start putting it away. Just about everyone is looking forward to getting past the year 2020, but this should actually be something completed every year. I am talking about physically putting stuff in a box.

Sometime around the middle of December when the last bills are paid and into the first of January every year, we start gathering up the assorted pieces of paper representing the previous year. This includes receipts, credit card and utility bills, bank statements and the like. Anything that we will likely not need again goes in a box, or if we are fortunate, a large envelope. If we have moved much of our business online, we may not have many paper documents at all. Hold out anything that is multiyear, or that we may need for tax purposes. Items like receipts for things that may have a long-term warranty like a furnace or appliance should be stored another place for future access. Put auto maintenance receipts in a separate file labeled for that automobile for the day you need to know how old the battery is or when the brakes were changed last.

Gas receipts and everything that is basically done, can go in a box that we can seal up and reasonably expect to never need again. We then label the box “2020 Receipts – Shred in 2025.” It is always possible to keep these documents sorted in this way through the year, but it feels great one day in January to complete the task.

Tax returns are “live” or considered active for three years. If you are audited or need to produce a receipt for a claimed deduction, like a charitable donation or medical expense, it will be within three years. The IRS is now sending out letters requesting further information for 2018 tax returns, the ones we filed 18 months ago. 2016 tax returns are history unless a criminal investigation is ongoing and we’d likely know what that would be about already.

With that in mind, five years is plenty long enough to keep any receipts that don’t involve long-term consequences. Some business expenses such as major equipment that is being depreciated or the roof on your home or a rental house, you can decide to keep the paperwork longer or file them differently to make these easier to access.

With the old receipts safely in a sealed box, we can put them in long-term storage such as on a shelf in the basement. Then pull out the oldest box, the one that says, “Shred in 2020 or 2021.” These are the ones from 2015. Take the oldest box to a commercial shredder if you do not own a cross-cut shredder. UPS stores, Staples, and many other places will shred your documents for about $1 per pound. If you have not needed to see these receipts or statements in five years, you won’t.

Don’t just pitch the old records in the trash because they likely contain account numbers, bank information or other personal information that you don’t want to fall into the wrong hands. A large number of scams or frauds are started with thieves just going through someone’s trash. A shredder will dump your documents in a machine and confetti comes out the other side. You are now good to go and get on with your life in the exciting new year!