Money Magazine – September 2007

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moneyAfter missing out on the August issue due to the move, I finally received my September issue of Money in the mail. The cover story, The Best Stuff At The Best Price, indicates one of those consumer-oriented Money articles that makes me roll my eyes, but the other articles on the front page hint at some potentially interesting stuff. Here are ten things that really stuck out at me from the issue.

People overinvest in their house. The average net worth of people aged 51-56, an age range that’s very likely to own their own home, went up 11.6% from 1992 to 2004. However, subtract their home from that and the net worth is actually down 3.3% over the period, ignoring inflation. What does that mean? People are counting on the value of their home more and more, which means that if housing prices level off for fifteen years like many are predicting, many people are going to have a huge chunk of their money in something that doesn’t grow in value at all. Ouch. A home is a great thing to have, but don’t put yourself in a place where it’s the only thing you have. (p. 21)

The biggest mistake job interviewees make is talking too much. I generally agree with this. The best interviews I’ve been involved with – as an interviewer – were the ones that turned into a conversation. One good tactic is to take full advantage of the part where the interviewer asks you if you have any questions – have at least a few lined up at this point so it seems like you actually are interested in the job. (p. 28)

Time with a financial planner can be a great gift for adult children. I agree wholeheartedly with this idea – an hour or two with a financial planner just as a twenty- or thirtysomething is starting to “get it” in terms of what they need to do with their money can be the best gift you can give. (p. 32)

When you are close to your goal, get out of stocks. This was a really useful article. Using the S&P 500 as a baseline, it made a very clear argument that when you get within a few years of your goal and the stock market isn’t fresh out of a monstrous downturn, you should pull your investments out of stocks. The article used retirement as the goal, but it’s true for any goal you might set – my wife and I have our dream house as an investment goal, for example. (p. 46)

Use a dangling carrot to get contracting work done well and quickly. For example, if you have someone fixing your kitchen and you agree in advance that it’ll be done on a certain date, let the contractor know that you’re having a big party shortly after the completion to show off the new work and might be willing to pass around the contractor’s card if the job is done well. The lure of lots of potential business is often enough to keep the contractor very focused on you. (p. 51)

With current mortgage rates and tighter lending, PMI is often a better choice than a piggyback loan if you don’t have 20% down. Here’s a really nice calculator so you can run the numbers yourself – most recent offers I’ve seen have a PMI of around 0.5%, a base loan between 6 and 7% and a second loan at around 8%. Running the math there shows you the PMI is cheaper, even with the potential reassessment cost. (p. 67)

Performance comes and goes, but costs roll on forever. – John Bogle My favorite quote from a list of twenty great ones. (p. 92)

The college admissions “game” is a waste of money. The article profiles people who have blown five figures on private SAT tutors and college admission preparers and such, then indirectly concludes that they’re a waste of money. Instead, they show a student who got into Harvard and didn’t spend a dime on the junk. What should you do to bolster a college application, then? Spend time on activities related to stuff that genuinely interests you. For me, in high school, I got fired up by the FFA and got heavily involved – my experiences there helped me a lot. (p. 103)

The best strategy for not beating yourself mentally while investing? Get a low cost index fund and forget about it. That’s the general idea behind a lengthy excerpt from the book Your Money and Your Brain. (p. 104)

Some stuff is worth paying extra for. I thoroughly agree with this sentiment in general, but the provided list of things actually worth paying extra for makes many big value judgements for people. For example, I don’t really feel the need to spend $200 on bedsheets. (p. 128)

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10 thoughts on “Money Magazine – September 2007

  1. Just a thought on bed sheets. I agree that you should have nice ones. Bed, Bath and Beyond has there own line of sheets Pure Beach (they come in Sateen and Jersey). They are awesome! I have about a half dozen sets (for variety and guests). They do wear out after a few years and need to be washed on delicate, but they are so soft and very reasonably priced. I LOVE them!

  2. ::Biased opinion coming::

    Private SAT tutoring is not worth 5 figure payments, however it is not completely useless.

    A great SAT score can make up for deficiencies in other areas of the application, such as mediocre grades or a semi-weak essay.

    Yes, I am a private SAT tutor.

  3. My niece also tutors for the SAT. She charges $50 per hour. I think it can be somewhat helpful but not for five figures….more for a student who, say, needs to brush up on math.

  4. I got into Harvard, MIT, and Caltech in fall 2000.

    My thoughts on SAT tutoring:
    There is no substitute for actually knowing math, grammar, and vocabulary. The best way to build vocabulary is by reading high quality books and periodicals from an early age.

    That said, I found buying an SAT prep book and the book “10 Real SATs” (or somesuch title) enormously useful. Even if you know math and vocabulary, reading the book and taking the many practice tests helps you be able to regurgitate the material quickly and automatically.

    My parents bought a few sessions with a private college counselor, but only because my mom and I had so much friction over how I was completing my college applications, to the point where she spent all her time yelling at or hitting me and I was contemplating suicide. The counselor was basically a neutral third party who read over my applications and told each of us when we were being unreasonable. My counselor in public school would have performed that service for free, but she had restricted hours. And, well, the private college counselor was cheaper than therapy. If you are willing to help your kid guide their extracurriculars in a college-oriented fashion and complete the applications, and your kid only hates you a little, you don’t need a college counselor.

    I would warn you that even “free” activities aren’t free. My parents must have burned a lot of money driving me to community service sites, academic competition sites, and school-sponsored sports events where my participation was free. (Public transit where I grew up was not good.) Then, there are the soft costs: the outfits I wore for recitals and college interviews, for example, were not free.

    If you play the college game and get burned out, though, most college health services provide therapy for free.

  5. I didn’t do any SAT/SAT II/GRE prep either aside from doing the practice questions that came free with registration. But I am curious what test prep is like. What do you do with the students? Who is it most helpful for?

    !wanda, you are cracking me up: “if… your kid only hates you a little.”

  6. My philosophy in high school and college was to never work harder than I wanted to work in the “real” world. If you aren’t smart enough to get into Harvard, you probably don’t belong there, and so you shouldn’t spend thousands getting there, because when you graduate, you’ll have to take a job you hate to pay the bill. In other words, there IS such a thing as working and studying too hard!

  7. The best preparation for the SAT is taking practice tests–there was a criminal operation that operated a decade or so ago that was a gang of kids who would take the SAT for you, for a few grand a pop (the security measures on the test have increased to prevent such cheating). They found that they took the tests frequently enough that they could get perfect or near perfect scores, and so would intentionally miss some questions so as to avoid drawing suspicion.

    I disagree with the “pull everything out of stocks as you approach retirement” suggestion. I’d rather always have some percentage of my holdings in stocks, because the return is likely to be substantially greater than fixed income securities. I also think it is a mistake to assume that fixed income securities like bond funds are always less risky than equities–default on debt is possible, especially if you’ve got some subprime mortgage exposure…

  8. I feel the need to have $200 sheets … but I buy them for $40 or $50 at Marshall’s. :) And when our fitted sheet wore out, I found a replacement there for $20 instead of buying a whole new set.

  9. !wanda I hope you keep up the commentary and even start a blog someday about the we educate ourselves.

    Trent, oddly enough when I saw the Money mag at Borders you were who I thought of first especially when I saw the title of the article that made you roll your eyes. If ever an article was designed for use with the ten second rule this one was it.

    And oh yeah, I think the book club idea is neat but it might be redundant.

  10. “But I am curious what test prep is like. What do you do with the students? Who is it most helpful for?”

    I teach for one of the big test prep companies. Prior to working for them, I always thought of test prep as something for the “pretty smart, highly motivated, not quite genius” crowd, i.e., those kids sitting on a 1200 or so that needed a 1400+ to get into an elite school. [This was before Writing was added.] In short, I believed it was for the over-programmed kids whose SAT scores didn’t live up to their parents expectations.

    I was wrong.

    My students now:
    (1) Foreign-born students, often with stellar math scores, whose reading & writing scores reflect their difficulty with the nuances of the English language. **I think there’s room in the Test Prep world for a specialty company to target these students. ESL isn’t just for Spanish-speakers. Many Asian students live with host families through high school, specifically to prepare for entry into a US college.
    (2) Students who are very bright, but do not test well. They need to learn the “game” of test-taking, and to trust their instincts on multiple-choice tests.
    (3) Students who care very much where they will attend college, but prefer to learn with a group instead of self-study. A joy to have in class!!
    (4) And of course, I always have a few that need the help but don’t really care to be there, sleep in class, and don’t understand why their scores don’t increase. One of these very students gave me the idea to take a photograph of sleeping students and email it to the parents shelling out $900 for the course!

    Groups 2 and 3 are easiest to coach and mold their test-taking practices; they get huge score improvements. Since we teach to the middle, I think that Group 1 gets left behind somewhat in the Reading & Writing topics. I could carve a niche, focus on the ESL students (grouped by native language and/or recency of immigration), and create a new “middle” to which I’d teach. The course may need to be longer & more intense, but the impact would be phenomenal.

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