Questions About Evil Index Funds, Stretched Belts, Debt Regrets, Grills, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Are “robo advisors” worth it?
2. How to help with tragedies?
3. Lower salary for lower stress
4. Are index funds evil? No.
5. Sad existence?
6. Expensive to start Meetup group
7. Stretched belt solution?
8. Combine 401(k)s or not?
9. Making money in real estate
10. Can’t let go of regret
11. Paying more for good manufacturer?
12. Does propane grill save money?

I just wanted to offer up a brief announcement that, by the time you read this (or very shortly afterwards), I will have signed an agreement that will keep me as a primary writer on The Simple Dollar for a very long time to come.

It is my hope that I will be able to continue to write here until my journey to financial independence is complete, and I hope you’ll be here the whole way.

Q1: Are ‘robo advisors’ worth it?

Hi, I’ve been reading a lot about so-called “robo advisors” when a company uses software to make investing decisions for you. What are your thoughts on them?
– Kelly

A “robo advisor” is simply a piece of software that makes investment decisions on your behalf. They’ve become popular in the last few years with the rise of new investment firms that focus on the use of software for investment advice (such as Wealthfront and Betterment) and larger firms dabbling in the idea.

First of all, it’s a mistake to think that software can somehow predict the future better than humans can. I have seen too much hype around robo advisors, often to the point of people acting as if software can somehow predict future market shifts. They can’t. No one can predict the future.

In general, I think “robo advisors” right now make sense if you’re investing in a non-retirement investment account that’s going to be hit with normal taxes, as software is very good at something called tax loss harvesting. That means that such software can look at the recent history of your investments and then automatically buy and sell them in a way that minimizes your taxes for the year. They do this conveniently and automatically.

This isn’t a benefit within a retirement account (such as a 401(k) or IRA) because all of your taxes are either deferred or eliminated. The taxable events with a retirement account occur when you pull money out of an account, not when you switch around investments within an account, so the big advantage of robo advisors go away.

For now, if you’re just saving for retirement by opening a Roth IRA, they’re just not worth the hype. They typically come with somewhat higher fees that simply aren’t justified if you’re not recouping that through tax-loss harvesting. They’re also not worth it if you have a “buy and hold” investment strategy and aren’t going to be reallocating your funds every year. If you have your own strategy you’ve cooked up but you want to automate reallocating to match that strategy and you want tax-loss harvesting every year because this is a taxable account, then it makes sense.

Q2: How to help with tragedies?

What is the most cost effective way to help with the tragedies of Hurricane Irma and Harvey? I want to help with a donation but I don’t want to just send it to anyone.
– Nina

I’m going to point directly to this clear and effective article from the New York Times: How to Help Hurricane Irma Victims (and How to Avoid Scams). It covers almost all of your questions.

The key take home message: Send money and not stuff and give to charities that have a very strong reputation. They specifically point to GlobalGiving’s Irma Relief Fund as well as UNICEF and Oxfam America.

If you’ve got stuff you want to send, be aware that the logistics of using it are going to be difficult and you’re honestly going to be more helpful selling that item locally and sending the proceeds from that sale. The item you send may or may not be needed and it still needs to be transported from your location to the disaster area, whereas money can be transferred instantly and used for whatever is needed at the moment.

Q3: Lower salary for lower stress

The general career advice I read is that the higher your salary is, the more stressful the actual work is, and the lower it is, the lower stress the work is.

So I have two questions. One, doesn’t that mean that the best jobs are ones that have relatively low stress for their salary level? Two, how do I find those jobs?
– Claire

I think you’re on the right track in thinking that the best jobs are ones with low stress compared to their salary level.

The trick with finding those jobs is that jobs that are high stress for some people are low stress for others and there’s no real consistency there.

I worked at a job in the past that I think some people would have found to be low stress but I actually found to be very stressful because of how I organize my time and work. Nowadays, I work from home with a super flexible schedule, which I find to be very low stress but some of my family members have told me that it seems incredibly stressful to them.

I guess the trick is finding the right kind of job for you, which is one that seems low stress to you but high stress for others. That way, you can get paid well for something that doesn’t leave you a stressed-out mess. For me, it’s self-directed creative work that runs purely on project deadlines. That kind of work doesn’t stress me very much, but for others it’s quite intense.

Q4: Are index funds evil? No.

Any thoughts on this article? I think it makes an interesting point.
– David

The argument behind this article is that, essentially, index funds amount to collective ownership of all of the companies in an industry, so it’s beneficial for those companies to collude with each other rather than compete in order to maximize overall profits. That, of course, means that there’s little reason for those companies to innovate.

Even if that argument is true, it’s ignoring the fact that index funds provide a huge benefit for many Americans. It allows them to diversify their investments greatly, reducing their own personal risk from investing in stocks, without a huge cost. That’s a great benefit for the person who just wants to have a healthy retirement savings.

My feeling, after reading that article, is that it merely points to a future in which the stock market, on the whole, is less volatile. If the market becomes more and more controlled by index funds, then people aren’t going to rapidly buy and sell nearly as much, which means that market spikes and crashes will be curbed.

Interesting article, regardless.

Q5: Sad existence?

I’ve been reading the blog for a while now and the other day someone said to me that being a ‘homebody’, reading library books, and exercising is a sad existence. The benefits of this lifestyle is that you save a lot of money. What are your thoughts?
– Stephen

I think that every person has different activities that bring joy into their life. For me, reading books is one thing that brings me joy. Going hiking is another thing that brings me joy – my trip to Yellowstone this summer was one of the best things I’ve ever done in my life. Cooking brings me joy. Going to community meet-ups brings me joy. Playing board games brings me joy.

I’ve tried a lot of things over the years that didn’t bring me joy. Going to clubs and bars didn’t bring me joy – it made me look at my watch and count the minutes until I could politely get out of there. Golf brought me flashes of joy, but I think that was mostly due to being outside and doing something outside. I could go on and on like this.

Yet, I know that there are people who get great joy out of going to clubs and bars. I know there are people who get great joy out of golfing. I’m truly glad those people have found something that clicks with them. It’s just not what I get joy out of.

I think everyone is best served by trying lots of things and figuring out what clicks with them. Go to a club. Read a book. Go on a hike. Try lots of stuff and find things that bring you internal joy, then figure out how to do that inexpensively. To me, the key to having a joyful and frugal life is just that – trying lots of things and figuring out what things bring you joy that you can do inexpensively. Those things are going to be different for everyone.

It is truly a waste of one’s time and energy to think negative thoughts about the non-harmful things that bring joy into the lives of others. Nothing whatsoever of worth comes out of that. Focus instead on what brings joy into your life and ways to make the most of that without spending excess money.

Q6: Expensive to start Meetup group

I wanted to start a Meetup group in our city for gardeners and I was shocked to find out you had to pay to start one! Am I misunderstanding or is this just a scam?
– Janine

That’s how Meetup makes money. Meetup supports small groups for free, but once your group gets above a certain size, they want you to start paying for it.

In theory, this fee is paid for through dues within that group or by passing the hat on occasion. If you have a group with 50 members or so, raising enough funds to keep the Meetup going should be easy.

Having said that, if this is your first time paying for a Meetup page for that group, you can simply leave the item in your shopping cart. Within a few days, Meetup will contact you and offer you a discount which will make at least the first year cheaper, and then after that you can pay for the renewal by passing the hat within the group.

Q7: Stretched belt solution?

How do you keep using belts when they stretch out? I have a very nice belt that over time has stretched to the point that even when I use the innermost hole it’s still too loose to be effective. This has happened before.
– Jerry

If I understand what you’re asking, you’re saying that you buy belts – presumably leather ones – and find that over time they stretch to the point that they’re unusable because even when using the smallest hole, the belt is still loose.

I have a couple of suggestions. First, when you initially buy a belt, buy one that really only works with the outermost hole. That way, when the belt inevitably stretches, you can switch holes gradually over time.

Another option is to get a ratchet belt, one that comes with a ratcheting track on the inside that doesn’t have any holes at all. Rather than fastening the belt through a hole, it simply catches on a notch on the inside of the belt each time you put it on. I particularly like the ones from Anson Belt and Buckle (I received one as a gift in the past and am wearing it right now).

Those two solutions should solve most of your belt problems. If you want to extend the life of your current belt, you can get a leather punch and add an additional hole, but it might not look the smoothest unless you’re pretty skilled with a leather punch.

Q8: Combine 401(k)s or not?

I recently started a new job after 7 months of unemployment. At my previous job, which I held for 11 years, I had a 401(k) plan that I put money into and had matching funds from my employer. However my new 401(k) has a lot more investment options. I asked my plan manager if I could roll forward my old 401(k) and he said he thought so and would look into it. I am having second thoughts though. Isn’t it a good idea to diversify and thus keep the two accounts separate in case one company goes bankrupt?
– Keith

Yes, to an extent.

Most likely (you’d have to verify this yourself to be 100% sure), both of the companies that manage your retirement plans include SIPC insurance as part of the account. SIPC insurance is a type of insurance that protects against the very thing you’re concerned about – the failure of your investment firm.

SIPC insurance offers $500,000 in insurance against the collapse of your investment firm (with the small caveat that at most $250,000 of that is held in the form of cash). If your firm goes under, then that insurance kicks in and what will most likely happen is that an account will be opened for you at another financial institution with a matching balance and (possibly) similar investments already in place.

So, if your total balance won’t be anywhere near $500,000, combining them is a fine idea. If your total balance is going to be near or over $500,000, you may want to keep them separate, depending on how you feel about that kind of risk.

Q9: Making money in real estate

I don’t understand how anyone could ever argue for throwing your money away on renting. That’s just [bad] advice. If you buy a $300K house and it goes up in value 5% a year you’re never going to catch that with renting. Get a clue.
– Jonas

For starters, the example you gave is of a house in a real estate boom. If your house is going up 5% in value a year, you are living in a bubble that will have a very hard time sustaining itself if interest rates ever go up. Prices will flatline fast and likely start dropping because no one will be able to afford mortgages, and interest rates literally have nowhere to go but up from here.

Furthermore, your example doesn’t include things like the cost of insurance, the cost of property maintenance, the cost of homeowners association fees, and so on. It also doesn’t include the investment returns one could get for investing the difference between the total cost of renting and the total cost of ownership. It also doesn’t say anything about time investment, either.

It is very easy to paint a glowing picture of homeownership and a bad picture of renting, side by side, but it only works if you take a quick glance and don’t look at the details. The devil is in the details with such comparisons.

Q10: Can’t let go of regret

Over the last year I have followed your advice and Dave Ramsey’s advice and turned things around. I just paid off all of my credit cards after having $11K in debt last February. Feels great! All I have left now is a student loan!

The problem I’m having is regret. As I paid off the credit cards I kept thinking about how all of it was really for nothing. I don’t remember almost anything I bought with those cards. It was all stupid stuff. My life would be so much better if I hadn’t done that.

Do you ever get past the “what ifs”?
– Edgar

No. At least, I never have, not fully.

Having said that, though, they do get quieter and quieter. The further away you get from that debt, the less that debt really matters. It begins to feel almost like it was another life, kind of like how it feels when you try to remember childhood or high school when you’re an adult. You can remember it, but it doesn’t feel like you any more.

Being in debt feels like that to me now. It feels almost like it was a different life because I’ve been debt free for a while.

I still think back to what I could have done differently and I do feel some regret, but enough good things have happened since then that I recognize I would lose a lot of good if I were to undo those mistakes. It’s the road I chose to travel and it’s one that’s filled with a lot of good things.

Make your road a good one going forward from here. Make strong financial and life moves so that you build a life that you love, and the regret will fade. You’ll soon see that you have a really good life, one that you wouldn’t have had without some missteps along the way, and the regret will turn into little more than a tool to help guide yourself to continued good choices.

Q11: Paying more for good manufacturer?

I am shopping around for a late model used car and want to stick to a reliable manufacturer like Honda or Toyota. What I am finding though is that used cars 2-3 years old from them aren’t that much less than buying new while cars from other manufacturers often sell for 40% or 50% of new. If you’re buying from the “good” manufacturers should you just buy new?
– Tamara

That’s the trick of buying anything, really. The market usually prices itself correctly, and Hondas and Toyotas retain value because they tend to have very long lifespans. Right now, I drive a Honda and Sarah drives a Toyota – both are approaching 200,000 miles and neither one has had significant problems. A friend of mine has a Volkswagen that is on death’s door at the 120,000-mile mark.

Here’s the thing to remember: Having a car from a more reliable manufacturer means that on average that car will last longer. It does not mean any sort of guarantee about how long a car lasts, and proper maintenance makes a huge difference. In my experience, following the maintenance schedule makes a far bigger difference than the manufacturer in terms of the lifespan of a car.

It seems to me you’re looking at three options. You’re either going to buy a new car from a reliable manufacturer, a late model used car with 10K-20K on it from one of those manufacturers for 10%-20% less, or a late model from another manufacturer for 30%-60% less. The number one thing you can do to smooth out the differences between the cars is to stick with maintenance. The manufacturer will have an impact, but not as big of an impact.

If I were in your shoes, I’d get the best car I could pay cash for, with a little left over to ensure you can stick to the maintenance schedule for a while. I wouldn’t sweat getting the late model used from a non-Honda-or-Toyota manufacturer as long as you stick to the schedule.

Q12: Does propane grill save money?

Is it cheaper to prepare food on a propane grill versus in a kitchen? Trying to do the math and struggling!
– Alex

It costs about $15 to get a propane cylinder refill that lasts for about 25 grilling sessions, give or take. So, you’re spending about $0.60 per grilling session on the propane. There’s also the additional cost of a gas grill which, if maintained a little, can last for 10¬†years with 50 grilling sessions a year, so 500 sessions. Let’s say you spend $200 on the grill, over 500 sessions, gives you a cost of $0.40 per grilling session.

So, back of the envelope, your total cost for a backyard grilling session on a propane grill is roughly $1.

What are you comparing that to? You’re comparing that to cooking a similar meal inside, which means that you’re using your household oven that operates on some type of fuel. During the summer, you’re also adding heat to your house, which is probably going to be cooled down by running the air conditioning, which is another expense. There are a lot of variables there, but it’s reasonable to estimate that the total cost of cooking a meal on a stovetop or in an oven adds up to $1 during the summer.

So, here’s the scoop – during hot summer months, the cost of propane grilling versus the cost of cooking is reasonably comparable, but depends a lot on your situation. If you have great air flow, for example, and aren’t running the AC, cooking in the oven is probably cheaper. On the other hand, if you maintain your grill well and get a lot of use from it and your home is in an area with a lot of heat and little air flow, the grill is probably cheaper.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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