Charles Farrell From “Your Money Ratios” Speaks! Part II

Social Security Act FDR

The following is the second and last part of my interview with Charles Farrell, the author of “Your Money Ratios“.  We discuss the much maligned 401k, whether Social Security will survive, and crowd favorite, how raising personal income tax levels further will ruin America!

The 401K AND ALL ITS GLORY

Question: Why do you think there are so many detractors of the 401k plan? Furthermore, do you think it is fair that the pre-tax limit contribution is only $16,500 for some 22 as well as someone who is 45? Presumably, the average 45 year old is making much more than the average 22 year old, so how come the government doesn’t propose an increased pre-tax contribution scale the older one gets?

Answer: Many people don’t like 401(k) plans because they believe the burden of funding retirements should fall on employers and not employees; thus they would like to see us go back to defined benefit plans that are funded by employers. Well, that is just not going to happen. Employers have no appetite for guaranteeing to pay their workers for 30 or 40 years after they stop working for them. And DB plans are not flexible enough to accommodate a globally competitive marketplace, plus they discriminate against individuals who change jobs or careers. Moreover, many DB plans (particularly government plans) are significantly underfunded and many who thought they had guaranteed retirements may be unpleasantly surprised at some point. So I think the “romance” with DB plans is misguided, but many people would like to see those types of plans again. I just don’t think it’s going to happen.

Then there is another set of individuals who don’t like 401(k) plans because of the limited investment choices and sometimes high expense structure of the plans. I agree with people on this front, and there are problems with some 401(k) providers, particularly those smaller plans that can’t drive better deals on their investment platforms.

But, most plans do offer competitive options and are low cost. It’s important for readers not to lose sight of the primary reason to use a 401(k) plan, which is the huge tax benefit provided to those who contribute; and if you get a match, that is just makes it more attractive. The tax deduction, the match and the tax deferral on growth are incredibly valuable tools to help build your capital. So even with some restrictions, the plans are basically the best place to build your retirement assets.

Regulators Are The Problem! (401K Con’t)

Charles Farrell of “Your Money Ratios” Speaks! Part I

Charles Farrell

As I wrote in my review of “Your Money Ratios”, Charles’ book sings to me. Charles has the ability to simplify complicated financial topics for the average reader to understand. His book is seriously one of the best books I’ve read on personal finance in a long while.

One of the keys to progress is learning from experts in their various fields.  Charles is gracious enough to answer some follow up questions I’ve been burning to ask after reading his book.  This will be a two part post due to the 2,800 word length of the interview.  In part I, we discover Charles’ motivation for writing his book, strategies for early retirement, and his conservative and debatable 50%/50% investment split between stocks and bonds.  In part II, we discuss the much maligned 401K, personal income taxes, why Social Security will survive, and why the flat tax is the right way to go!  Please enjoy!

WRITING “YOUR MONEY RATIOS”

Question: Was there a particular lightning bolt reason why you decided to write this book? For aspiring authors, what suggestions do you have to get your worked published in this ultra competitive field of business?

Answer: I wanted to write a book that would help average readers understand the most fundamental and critical relationships among one’s income, capital and debt, and how those things must be managed throughout your working career to build financial independence. So I took what are often quite complicated topics and figured out a way to present them in a very simple format that anyone can follow. I would like more people to enjoy the benefits of financial independence, and I hope this book does that.

As far as writing, all I can say is write about what you believe in. Hopefully, if you believe in it strongly enough, you’ll develop some expertise and then seek out ways to spread your ideas. Try to develop some niche that is reflective of your expertise. So I developed the ratios and they came out of my background in tax, finance and also working with individuals.

Think about what you do that is a little different and try to focus on that unique nature of what you do. It is a tough slog because the field is very crowded and often the least valuable information gets the most press. But you have to accept that reality and still push ahead. And then you need a little luck. Your message has to somehow get into the hands of people who appreciate and understand it. And that is hard to predict, which means you need a little luck to get it out there. So if you are going to pursue that path, I think you need to accept those realities of the marketplace.

EARLY RETIREMENT

An Opportunity To Speak With Consumerism Commentary

I had the pleasure of speaking with Flexo & Tom from Consumerism Commentary the other day about the genesis of this site, The Samurai Fund, as well as various Codes of Honor.  To go soon after one of my favorite authors, David Bach of the Automatic Millionaire series is a treat!

Why is it always so funny to hear yourself speak?  For a couple minutes before the interview I tested out my native Australian accent.  Realizing the audience would hail mostly from the US, I decided to scratch my bush tongue and speak in a more conventional “American” accent.  Hope the enunciation was clear.  Thanks to my mates Julian McMahon who plays Dr. Christian Troy from Nip/Tuck and John Noble aka Dr. Walter Bishop on Fringe for the inspiration!

To listen to podcast #43 on Consumerism Commentary click here.  When the Plutus Awards come out, they’ve got my vote for “Best Podcast” for sure!

Three main points of contention in the interview:

1) How much do you think luck plays in investment success?

2) Do you believe people can truly retire after 20 years of work, no matter what job they do?

3) Why are some people against the code of “get in first, leave last” during the initial phase of one’s career?

Readers, feel free to share your opinions on any of the above points and provide feedback from the podcast!

Regards,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”


The Katana: Happy Chinese New Year!

Double HappinessWhat a coincidence that both Valentine’s and Chinese New Year fall on the same day.  In fact, if you’re Chinese who celebrates Valentine’s Day, this could be the luckiest year of your life!  For those who aren’t, you still have 20 more years until 2030 to change your identity.  Let’s look at a couple of similarities between Valentine’s Day and Chinese New Year.

COLOR: Red is the default color for love and happiness.  Love > Money = Happiness as we explored recently.  If you’ve got love in addition to money, well then, you’re really one lucky barbecue pork bun!

TRADITION: The Chinese give young-ins “hong bao”, or red envelopes stuffed with money to sway them to be good.  Lovers also give their honeys money indirectly through dinners, flowers, chocolates, and spa massages, to sway them to do…. you decide.

Chinese civilization has been around for over 5,000 years.  Perhaps they are the original inventors of Valentine’s Day, spaghetti, sushi, and the running man dance.  Hmmmm.

The Samurai Fund: We are killing it team!  We didn’t capitulate on Toyota Motors, and dog poop Monster Worldwide wins this year’s #1 Super Bowl commercialTSF is up 0.13% year to date vs. the S&P 500 down 3.55%. As a result of our massive outperformance in this rocky market, Warren Buffet is giving us another $100 million to invest.  With these new proceeds, I invite Flexo to be our newest member.  His selection is Flextronics (FLEX), a vertically integrated electronics manufacture based in Singapore.  Welcome aboard!  (Click TSF link for updated chart.)

Week In Review: Gotta say, it was fun auditioning for Cosmopolitan Magazine with “How To Get Your Super Motivated Boyfriend To Marry You“.  The post turned off some women, found support from other women, while speaking to some fellas as you can see in the comments.  Of course, when the guys went back and asked how their girlfriends felt, they all disagreed.  After the 5th year of dating, have a read again and share your thoughts.

Every guy has some degree of SMB in them.  It’s not possible to always feel secure, never have any pressure, and marry the girlfriend by year two.  The 50/50 equal effort split is also just a pipe dream.  Someone will always feel more affection than the other.  Persecuted men out there, this one’s for you!  Helping ladies help men so men can help ladies sounds like a win-win scenario.

Rest of the Month: We’re going to slowly blend back into more personal finance related topics.  I’m happy to present a couple more guest posts, and at least one more book review and giveaway to readers.  As part of the Yakezie Alexa Challenge, I will continue highlighting your work here and on Twitter.  Perhaps you will do the same.

HIGHLIGHT POSTS OF THE WEEK

The Katana: Rough Waters On The Horizon

Friday’s post entitled, “The People Asked To Get ROCKED And A Boulder Fell On Their Heads” wasn’t supposed to go up.  I’m trying to limit the amount of big government love related posts, but “every time I try and get out, they pull me back in”!  Let the record show that I’m not against Democrats, I’m just disappointed in the system.  I do apologize to readers for the John Edwards of the world though.  At least politicians make life a little less boring.

The Samurai Fund is down 2.7% YTD, which compares favorably to the S&P 500 down 3.7% YTD.  Still, losing money is disappointing and I wonder if we have to change our outlook and investments given the anti-capitalism rhetoric by the government.  Should we raise cash?  Sell some of the winners?  Need some thoughts from the contributors and readers in general who have investments in the markets.

Perhaps now is the best time to open up the fund to 2 or 3 new entrants given the declines.  I will need help from someone to do a screen shot each week, because my 12″ monitor on my rocking 5 year old iBook G4 can only fit 17 entries!

The Freedom Fund continues to chug along slowly, with a $2,000 increase for January.  Nothing special, just savings from cash flow.

VIDEOS AND POSTS OF THE WEEK