My Book Review: "Purple Cow" by Seth Godin

Lately all I have been able to think about has been purple cows and rhinoceroses. This post is about the purple cows.

Seth Godin’s, “Purple Cow” is one of the best reads I’ve had in this early year. It is incredibly motivating and certainly relatable on an individual level. With that said I have one negative critique that I’m sure will set off a firestorm with the Godin faithful: The first third of the book was unbelievably boring.

A lot of the open in this book is technical and speaks directly to business minds and entrepreneurs that keep the wheel that is our economy spinning. This is not me. I was a communications major in college, which might be the furthest thing from the business program. Seth, I don’t understand your charts and most of the info in those opening chapters went right over my head, especially when I went back over the material at an even slower pace.

But of course that’s not a knock on Godin, as much as it is an open statement that the business thinking functions of my brain are pretty much non-operational. But once I got past the technical part of this book, the advice, aspects, insight and guidance Seth provides is just about second to none.

The application of the purple cow I felt is not even restricted to the formal business settings. I drew a ton of correlations between my own personal walk and journey in life to the concept of the purple cow. Some of the main things that I took away from this book included: staying sharp with continual learning (whether formal or informal), constantly staying up to date on the skills I bring into the workplace and for that matter even shortfalls that I need to work on and to always seek out personal growth as a human being.

So in case there is any doubt in your mind, I assert that “Purple Cow” is a must read, especially after the first third of it!

My Reverse Superman

In “Quitter,” by Jon Acuff (a book that has been reviewed here), Jon talks about doing the reverse Superman act. The reverse Superman is when you go from doing what you love to your day job. In the book Acuff uses his own personal real life example of being a keynote speaker one night, catching the red eye home and walking into the day job the next morning. I experienced this during the week.

My 2^nd FPU class wrapped up this past week and the last lesson always leaves a special place in my heart. But at this group’s last meeting it took on an even greater significance. As a group we had a round table discussion about what the class meant to us on an individual basis, and the response thoroughly left me in awe.

Couples shared about healing and better communication in their marriage. Singles talked about the empowerment they now have to review their personal finances with competence. And this one impressed me, as a few shared that even before this FPU class ended, they have been finding opportunities to help friends and family with needed financial guidance, sharing what they were learning along the way.

I felt energized, revitalized and in awe of how God is works through this program. I’ve been on my Total Money Makeover journey since 2009 and I am still blown away at how empowering and life changing this material is, especially when I see it reshaping and encouraging others. My wife and I stayed up that night about 2 hours past our bed time talking about the experience of facilitating the class. I was so pumped up and energized from being a part of what was experienced that I couldn’t go to sleep if I had tried.

The numerical end results were phenomenal as well. From a group that fluctuated around a dozen households, on average each household had an average change in financial position of $5,400! There was even one household that had a $17,000 change in financial position during the course of this class. Now that’s fun! Being a part of something that I believe in, getting to share it with others and see their lives transformed before my eyes is one of the best feelings in the world. And of course I’m already looking forward to the next round of FPU that my wife and I will be leading!

Now if there were only a way to do this type of thing full-time! 

My 2nd (of 4) Daily Motivational Mantras

"Laugh Often"

There couldn’t be better advice when it comes to personal finance than this gem, especially for those of us who take themselves way too seriously (guilty as charged). Even when I found the right path to financial freedom I still made and make mistakes. You will too. Especially when it comes to drafting and then living off your first few zero based monthly budgets. I overthought, overcomplicated and overstressed the entire ordeal a lot more than I should have.

As I’ve progressed though in my financial development I’ve actually found laughing at myself a much more easier process to go through than when I first started. When I first started I was crunched for time, 20k in debt and felt like I needed to get a move on everything, and get it functioning perfectly and fluidly ASAP. There was a ton of stress in my life brought about by the debt I owed and coupled with not having a plan and wanting to move along the financial prosperity spectrum in a hurry, it was a lot harder to laugh at myself when I made mistakes. Back then I felt that there was no margin for error.

Now when I mess up I still get stressed out about it, probably because I’m the control freak nerd spouse, but it takes me a lot faster than it did 5 years ago to pull back, look at the situation, see where I’m at, laugh about it and move on. So I find it fitting to share with you some of the best opportunities I’ve had to laugh often during my road to financial peace.

The first envelope pull

After having read, “The Total Money Makeover,” for the like the 5^th time that week, we were set to follow Dave’s envelope system for certain spending categories. Our zero based budget was drafted and agreed upon, and as soon as the vote was set to agree on our plan I whisked off to the nearest ATM to make our monthly cash pull for grocery expenses. I was so confident, a bit arrogant, but set in stone that this plan was going to work and work right now in my plan for financial prosperity. I stopped at the ATM and pulled out our agreed month allotment and then proceeded to the grocery store (a block or so away from the ATM) to make our first cash grocery purchase “on the plan.” When I came home we put the groceries away and I pulled the receipt to accurately track how much we had spent and how much should be remaining in the grocery envelope. When all dollars were counted, the envelope was short $20! I went into orbit and felt like such a failure. Here I was trying to get my financial act together and blew it on day one.  Did I drop it in the street? Did I overpay the cashier? Is it in another pocket? None of these questions would be answered because I had lost $20 the first time I tried to use the cash envelope system for grocery spending.

I can assure you that looking back on it now, I genuinely am laughing at myself. That young man at that time needed to learn a lesson in humility. He needed to know right off the bat that perfectly planned months don’t happen and that life is always happening to your budget, whether you like it or not, or plan on it or not. That night we made needed adjustments to cover the $20 shortfall from another category, breathed deeply and moved on. I am happy to report that since that night I have never lost a single dollar transporting cash from the ATM to our envelopes. As a matter of fact a month or so ago, when my wife and I were returning from the very same grocery store that I had lost $20 at, walking down the very same path back to our apartment, we found a clean, crisp, $20 on the ground. Yes we picked it up and yes we used it to refill the grocery envelope from that $20 lost long ago. It’s interesting how things circle back around!

The Cash Holding

This past year I was ready and set. When the market crash of 2008 occurred we used a limited amount of disposable income from our month to month budget to invest as the market free fell. With the 2012 fiscal cliff deadline looming in the distance I was going to be ready for that imminent market drop. So months before December 31^st, 2012, we had stockpiled $5,000 to be ready for when we all went over the fiscal cliff. I was expecting a big market drop and wanted to swoop in with even more cash than we had in 2008. We still did our systematic and consistent investing through our retirement vehicles, but I wanted to give our brokerage account a nice cortisone shot in the arm by buying awesome mutual funds at great prices with even bigger dollars. December 31^st, 2012 came and went, we went over the fiscal cliff, our brilliant government passed an awful solution, and the market didn’t drop. In fact it pretty much has done the exact opposite. This has left me wishing I had taken my own advice: consistently invest steadily and regularly over long periods of time and do not try to time the market.

I should really listen to that guy, he seems to know what he’s talking about J! But be rest assured that even though a lot of that $5,000 in cash has missed out on the ride that has been Q1 2013, between our entire investment portfolio we currently have over $100k that is invested and has been a part of this ride.

The middle of nowhere suggestion

This one is not financial, but it’s still a funny story in my book. A few years ago my wife and I took a road trip up to Northern Michigan to Mackinac Island. Along the way we stopped by main drags in small towns along the way. My wife had randomly chosen 3 or 4 great places in a row that were picturesque and really fun to have stopped at. So when she took the wheel I figured it was my turn to strike gold. So with our GPS in our rental car I randomly picked a destination in a small town in route with an address of Main Street. About an hour later through windy hills and countless farmland we ended up at the destination I had selected:  vacant farmland in the middle of nowhere that was not exactly off a major highway. When we arrived at the destination point my wife pulled the car over and we immediately burst into laughter for a good 20 minutes. It still makes me chuckle how confident I was that I could find our next great adventure on our little roadie.

The mutual fund that got away

Now I believe with everything in me that if you filter and search, that there is a plethora of excellent mutual fund choices out there. But every once in a while one crosses your path that just makes your jaw drop in awe. Many moons ago one of the best mutual funds I’ve seen in a while crossed paths with me. Through my employer’s 401k one of our choices was a superstar Dodge & Cox Large Cap Growth and Income fund, known lovingly as DODGX. This beauty has been around since 1965 and has an average annualized return of 10.74% since inception. Oh, and its fund manager Mr. John Gunn has lead the fund since 1977, so he kind of knows what he’s doing J!

For about 7 glorious months this mutual fund was a part of my portfolio, and I am understating this when I say that it was bliss. But the rug was pulled out from under me, as our 401k options changed and this proven stud was traded out for a couple of mutual funds that weren’t old enough to be out of diapers AND had average annualized returns that were a fraction of what DODGX brought in. I was scarred, I was upset, I was hurt, but I moved on. Looking back on it now I definitely chuckle at the fund that got away.

Conclusion

I have found that I have absolutely no control whatsoever at the curve balls that life will throw my way. Whether I end up in a field, losing a great mutual fund, am left holding a pile of cash or losing Mr. Jackson, I’ve definitely seen firsthand that life’s ups and downs are going to happen. I have and will make stupid mistakes (hint: you will too). But with a solid long term financial game plan that works through bulls and bears, and not taking myself too seriously, I am genuinely happy right where I am in life and the direction that I’m heading. Through the successes, failures, laughable moments and everything in between, I must say that life has been really enjoyable in my post-Ramsey days!

My International Mutual Funds

I decided it would be fitting following my super fund annual checkup to give a breakdown and assessment of two mutual funds in our portfolio. In my opinion these 2 funds epitomize the highs and lows as well as the perceptions and realities that come when looking at investing in the stock market.

Within our taxable brokerage account we have a small army of 8 mutual funds. From the 4 categories of mutual funds that Dave Ramsey advises to invest in, in our brokerage account we have 2 of each. The two that I am going to focus on today are the 2 international mutual funds that are in this account. So as I go forward in this tale please keep in mind that across all of our investments we are earning a little over 16% average annualized returns, and this is only a micro look into 2 funds that help make up that 16%. I still only advise investing in historically proven mutual funds and buying and holding for at least 5 years, but I have the feeling you already knew I would say that J!

When I began investigating, researching and compiling what mutual funds would be in our taxable brokerage account it was the winter of 2008. The market was freefalling and blood splattered the streets red. Panic was everywhere like a fast spreading disease. As a lot of investors were jumping off the roller coaster and selling their equities for bonds or opting for cash, my wife and I were determined to start our investing portfolios right then and there (my wife more than I, admittedly). 

I am confident and proud to say that the American economy (as a group) is the most resilient force on the face of the planet. It is resilient against war, depression, recession, threats of war, economic busts and acts of terrorism. So when it came time to assess and look at international mutual funds, I was even more stringent than usual.

Europe as a whole dictated how I strategized the international mutual funds that would end up in our portfolio. The economies of Spain and Greece were wreaking havoc on the Euro and the region as a whole did not appear to be on the upswing to me. However, when I look at Europe I see a developed group of nations, that as a whole, is incredibly stable. But outlook to me at the time said that over the next 5 years, if an international mutual fund carried a mix of European companies, that it was going to be very tough for that fund to average 12% average annualized returns in that region.

So I took a swing. I decided to look at international mutual funds that looked outside of Europe and were region specific. That led me to 2 mutual funds that met my strict criteria and took me away from the Euro. These funds were region centric to the Asia-Pacific and Latin America.

APAC

More than being fascinated, I have always been drawn to this part of the world, from an investing point of view, as a great mix of emerging and developed markets. Aside from China (because everyone already knows about it!) just about every country from Japan to Australia has seen excellent and continuing growth from blue collar manufacturing to white collar financial. Now while our mutual fund that focuses on this region has a slightly higher weight on companies in China, the contribution, growth and development of this region has happily contributed to this mutual fund earning 22.76% average annualized returns while we have held the fund. Solid growth, great diversity and tremendous upside, our APAC centric mutual fund has been a winner through and through.

Latin America

Then there’s this one. In the 9 week version of FPU Dave asks if any of us have had so many kids that we have a stupid one. Well, this is my stupid one. It had been about 3 years since I bought my first set of mutual funds in our brokerage account and I was gearing up to buy the next 4. I still felt the same way about Europe, and at the time (and I still feel this way) I felt bullish on Latin America. My positive feelings generated from two things: (1) Brazil hosting the 2014 World Cup and (2) Brazil hosting the 2016 Olympics. With a horizon right at 5 years I still see upside for the region. So I sought out a Latin American centric mutual fund with my heavy hitting criteria, and specifically looked for ones that were slightly weighted towards companies in Brazil. I still see these 2 events as a steroid shot for the economies in the region and I remain bullish, probably to my own fault in this case, through 2016. To date our Latin American centered mutual fund has returned -16% average annualized returns for us. Ouch!

I still see upside and look forward to the region hosting the World Cup and Olympics. But once the torch is lit in Rio we will be liquidating our Latin American mutual fund and seeking a global fund that meets my strict criteria. I do think this mutual fund will turn around as 2016 approaches and come into line with its historical averages, but beyond the Olympics we are planning to cut the investment and seek another fund. So we will continue to hold the shares that we have invested until the torch is lit, but we will not be purchasing any additional shares and have also elected to not reinvest dividends and capital gains and will liquidate this fund once the Olympics begin in 2016.

So there you have it, one nicely up, one disappointingly down. But as I go forward I will continue to stay diverse in my investments with historically proven winners. Because through all of our investments I find it interesting that even with a negative 16% loser, our overall portfolio is up 16%...ironic??

My Super Fund Annual Checkup - 2013

Early February is one of my favorite times of year.  The bitter cold of a Midwest winter has settled in, the holidays are over and did I mention here in Chicago we are a good 2-3 months away from consistently warm weather?!?! So why am I so chipper this time of year?  Because in early February of every year I take a bird’s eye view of my investments for a thorough performance evaluation.

A big part of going from $0 to a million is demonstrating that Dave Ramsey’s principles work in real life.  Sure, a lot of his suggestions come across as common sense to the masses: get an emergency fund, pay off debt and live on less than you make. But the most contentious issue on everything that is Dave Ramsey is, “Can you really make 12% investing in the stock market?”

Some naysayers say REIT’s get good returns and that mutual funds aren’t the only way to go.  But the majority of the “anti-Dave” crowd asserts that 12% just can’t be done. And my super fund annual checkups put the Ramsey way of investing to the test.

For those new I’ll bring you up to speed. I follow Dave Ramsey’s style of investing, and in some regards use an even stricter criteria.  I spread my mutual fund investments across 4 types: aggressive growth, growth, growth and income and international. I invest in mutual funds that have averaged at least 12% average annualized returns since inception, and those funds have to have portfolio managers that have lead the fund for at least 5 years.  In my superfund annual assessment I look at my average annualized returns across our Roth IRAs, our taxable brokerage account and my 401K.  A disclaimer on my 401K though:  The equity options suck through my program, so in my 401K I am currently invested in a bond fund and include my employer’s 50% (newly reinstated by the way) match as growth on my contribution.

I know you’ve been on pins and needles, so let’s get to assessing! My Roth IRA is currently returning 8.45%, and my wife’s Roth is bringing in 12.36%.  My 401K, even with instant 50% growth through the match, is currently bringing in 16.26%. And lastly, our taxable brokerage account is swinging in at 27.95%.  So across our reported investment vehicles, we are earning 16.255% average annualized returns investing the way Dave Ramsey teaches.

This is quite the change from last year’s 9%!  For one, I found some better tools through our broker to get more accurate calculations, but mostly our mutual funds did a great job of riding the wave that was the bull market of 2012 that spilled into early 2013.  So I encourage you to not only follow Dave’s advice on investing, but to please share this post with anyone who says 12% is unattainable or does not believe “the little man” CAN build wealth through the stock market.  The market is not rigged; you just have to make informed and well researched decisions when investing. J

My Ongoing Learning

I for one am a huge proponent of on-going learning.  Whether reading a non-fiction book attending finance seminars, scouring the net and finding articles and posts on personal finance, I am all about learning something new and continually feeding my mind. This past week I attended a personal finance session that more or less covered the basics:  plan to save, plan to retire, plan to budget – along with a few things in between.

I figure if I can walk away either learning one new thing that I didn’t know before, or get a pulse reading on how others in the room are feeling about personal finance, that it was worth my time.  I entered the session with my notepad out and ready to learn.  Content wise there was nothing ground breaking presented. The speaker talked about the importance of savings, needs vs. wants, and envisioning retirement. So in this session what stoked my interest was the temperature in the room.

From the onset the mood was tense. Some questions were asked and emphasized and I again began to realize there are a lot of hurting families out there. They are worried about how to retire with dignity, cover healthcare costs, sent their kids to college and of course manage their perceived crushing student loans.

Empathy oozed out of me as I sat in the back of the room and watched and listened to the presenter field these questions. It almost struck me as if many people in the room had not recovered emotionally from the market crash of 2008, but that’s just my opinion.

It then began to make me proud that this blog exists. That I am exhilarated to be the voice who says you can live debt free in the 21^st century, plan to pay cash for a home, plan to retire with millions, give like no one else and not make an exorbitant income.  Then it happened.

The topic of debt management was on a slide and immediately the feel of the entire room perked up from dire straits to high energy.  The very same people who were worried about sending their kids to college, saving for retirement and outliving their money, suddenly turned into sophisticated financial snobs.  The room talked about how wise and smart they are and it is to own credit cards and carry levels of debt throughout their lives. It was absolutely heartbreaking to see those that were struggling with their own personal finances, accept all of the debt myths as facts and not even piece together that there is a direct correlation between the two.

At first I was disappointed, then sad, and now encouraged.  I’m encouraged that this blog is my voice out in the world declaring that I am building wealth and financial security without debt.  No credit cards, no student loans, no car loans and no mortgage is how I am living my life all the way through to the end. And with each passing quarter my net worth is building and building and the core component of that is becoming and staying debt free. So consider me extra motivated to keep posting here as proof that wealth is best built without debt and that if I can do it, believe me you, definitely can too following the same principles Dave Ramsey teaches.

My Problem With Target Dated Mutual Funds

One of my biggest pet peeves when it comes to personal finance is the debate amongst mutual funds. Tons of topics and questions are explored and it just drives me nuts how the most important factor is never weighed. I’ve seen forums, articles and posts that explore the ‘to load or not to load’ argument, then there’s the ‘active versus passive management’ debate, promptly followed by the ‘should I just follow an index fund’ deliberation.

NONE of these topics or discussions address the fundamental question that should be on our minds when looking at investments: What is going to make me the most money in the long run?

What investing is not?

To me investing is not for any money that is needed for less than 5 years. If I have money that I plan to use within a 5 year time frame then I keep it as far away from the stock market as possible. I don’t use government or corporate bonds as safe havens. If I want a safe haven I’m going to use a simple savings account through my bank. Bond prices can fluctuate just as wildly as single stocks in the short term and in the long term barely stay ahead of inflation.

 I maximize the stock market by leaving investments alone for at least 5 year time spans. I research and find historically proven mutual funds and buy and hold for (say it with me now class) at least 5 years. To me if I need cash and plan to make a purchase/live off money needed within that 5 year time span then I need it to be safe and secure in an FDIC insured savings account. I’m not even going to risk losing value in that cash beyond inflation; to me it’s simply not worth the risk. Investing in the stock market is about riding the wave of growing businesses for long term periods of time. So I follow a rule of thumb to only invest in the stock market for long term growth results, not as a safe haven.

My beef with target dated funds

From there exists a perceived hierarchy of the types of mutual funds. One that I loathe with every ounce of my being is the target dated fund. A target dated mutual fund works like this. Say I entered the work force in 2010 and was 21 years old and I planned to retire at 65. At my planned retirement age the year would be 2054. So a target dated fund person would encourage me to invest in a target dated mutual fund that has a target date close to the year 2054. Most of these target dated funds, name wise, run in 5 year increments so I would be encouraged to invest in a target dated fund with a target year of 2055. During the time I am investing in this fund, the fund itself will hold a sliding balance of assets between stocks and bonds. In 2010 the fund might hold around 80% stocks and 20% bonds, and in 2050 it would hold 80% bonds and 20% stocks. Obviously the sliding scale begins heavy with stocks and slides towards a heavier holding weight in bonds as the target date approaches. Target dated funds are low fee and have built in risk management. And that is how they sell this trash!

And it’s trash because the longer you hold bonds the lower your overall investment return becomes. From the “get-go” target dated funds hold bonds which barely stay ahead of inflation, and you hold that pathetic investment over decades, missing out on the long-term lift that comes with equities.

“But I paid a lower fee…”

Yes I may have paid a lower fee buying the target dated fund, but it’s lack of growth over decades, simply by holding bonds, makes the fee discount look like a ridiculous argument. I’ll paint an extreme example. Say you invest $10,000 in a target dated fund that returns 8% over 20 years and pay the super low target dated mutual fund fee of .002%, you would net $49,169.42

Pretty impressive right??? WRONG! With a historically proven growth mutual fund earning 12% over that same time frame AND let’s say paying fees that total out to an absurdly high 5%, you would net  $103,429.19. That is over a $50,000 difference! $50,000 is way too much to pay for low fees and perceived “safety.”

“What about a real life example?”

You want it? You got it.  Let’s use a similar scenario with two real life comparable funds.  Let’s say the year is 1992, I am 21 years old and just began working.  Let’s also say I’m ahead of the game and have $10,000 to invest and I plan to retire at 65, in 2036.  I could invest in a “trusted” name when it comes to target dated fund investing so in option 1 I go with VFORX, Vanguard Target Retirement 2040, widely considered a Vanguard Safe haven, VFORX also has a considerably low expense cost through my broker at 0.19%.  Flash forward to today, since inception this fund has averaged 4.39% average annualized returns, and after expenses paid, if I redeemed everything today that 10K would now be worth $66,429.38. 

Then there’s option 2 - a good growth stock mutual fund that meets my criteria to invest in – BPTRX, Baron Partners Retail Fund. Through my broker this fund has a higher expense cost at 2%. Since inception BPTRX has an average annualized return of 11.92% and through this superstar fund my 10K is now worth $118,301.02 – AFTER EXPENSES ARE PAID here at the end of January 2013.  Even with expenses that are 10 times higher BPTRX is the superior choice to VFORX by over $50,000 over the last 20 years.  And guess what? VFORX is only going to get more conservative in its investments as the years go on.

“But Rob, that wasn’t a fair comparison…”

You might be right.  After all, I couldn’t even start investing in VFORX until 2006. That’s right friends, target dated mutual funds not only have horrible returns, but the ones meant for you are still in diapers when you are just starting out in your career!  I want a proven winner in my portfolio, not a schmuck with mediocre returns.  But pound for pound let’s look at the last 3 years, all post the 2008 market drop.  VFORX over the last 3 years has averaged 9.06% average annualized returns, turning 10K into $13,109.88 after the same expenses are paid.  BPTRX, as it may surprise you has averaged 13.01% average annualized returns over the last 3 years, netting $14,743.21 after 3 years with a 10K investment.  So when you break it all down, there’s really no doubt about it: target dated funds suck.