This week there were riots in the streets of Greece, where people were protesting government austerity measures to keep the country from going bankrupt. Let's examine this.
These austerity measures had to be approved for Greece to get the last $17 billion of a $156 billion debt crisis relief package that was granted last year by its European neighbors - some of whom aren't in the best fiscal shape, either.
Most of the protesters were younger, in part because they may not be able to have the cushy life of their parents. To wit:
*There was a hike in the retirement age to 65 from as low as 61. (61! And this in a country where shorter workdays and 6 weeks of vacation annually are the norm.)
*There will be a 33% increase in gas, cigarette, and alcohol taxes
*There will be far fewer goverment jobs, and government health spending will decrease
To the poor people of Greece I say, Boo Freaking Hoo. You brought this on yourself, kicking the can down the road for decades. You knew your government-funded lifestyle was unsaustainable, you just didn't have the guts to do anything about it. Or maybe no one was showing up for work to vote on changing things.
The thing of it is, America may not be so far behind. We've been kicking the can down the road for years, too, not fixing our own fiscally unsustainable social programs.
So let's learn from Greece's mistakes. They are in for a big-time recession now. But if we implemented some of their other austerity measures, it could help avoid that. For example, beyond reforming their version of social security, they are cutting education spending by closing or merging schools. We can and should do that, notably here in Iowa, where some entire school districts have under 100 high schoolers.
Let's do something now, to keep Uncle Sam from becoming Greece-y.
Thursday, June 30, 2011
Friday, June 24, 2011
Insurance = Bad Investment
From time-to-time, I get asked about the biggest or most common investing mistakes. Somewhere at the top of my list is this - insurance is a bad investment.
Don't get me wrong, insurance is absolutely necessary for asset protection. But many people go well beyond that, drinking the insurance agent Kool-Aid that it should also be used as an investment. Of course, the insurance agent makes a much larger commission then, but pay no attention to the man behind the curtain!
A primary example of unnecessary insurance is a variable annuity. (I could also pick on universal / cash value life insurance, maybe another day.) Variable annuities are insurance contracts that claim to offer a ‘guarantee’ that investors will earn something like 5% or more annually, regardless of market performance. In theory, even if the market value of the account drops, you will still be ‘earning’ 5%. Sounds great, right? With a closer look, most people won’t think so.
First off, the ‘guaranteed’ return is actually based on a hypothetical (not actual) account balance. This hypothetical balance is the minimum basis for a small annual amount that may be accessed prior to death. But to take full advantage of this ‘guarantee’ you have to keep your money tied up for a very long time – in many cases for 10+ years – and you lose the ‘guarantee’ altogether if you make excess withdrawals prior to then.
During this entire period, you are paying dearly for that ‘guaranteed’ return. The additional charges can be 1%-2% or more every year on top of the annual fee, regardless of whether you ever use the benefit. That’s in addition to the 1%-1.5% per year charge for administrative fees. And that’s in addition to the management fees of 1%-2% paid to the people running the actual investment sub-accounts. All in all, you could be facing annual fees of 3%-5% per year or more! That’s a real reduction in invested funds, as compared to the hypothetical ‘guaranteed’ return.
Finally, there is a low probability of needing the ‘guarantee’ in a variable annuity. Insurance companies know history, and historically, these products benefit the insurer. If a person desires a guaranteed lifetime income stream, this can be done far more efficiently and inexpensively through a basic fixed annuity.
So why are variable annuities sold? Because insurance companies make huge profits on these products, and in turn pay high commissions to the brokers who sell them. And while they are very complicated products – many people who market them don’t even know how they work – they are easy to sell to unsuspecting investors. Insurers and their salesmen know that in the current economic environment, people are scared, making them easy prey to purchase anything that looks like a guarantee.
Don’t let pricey gimmicks distract you. The expense of a variable annuity will produce a significant drag on performance each and every year. Your funds will be much better off in a low-cost, properly managed investment account. It may not be flashy, but it works, while allowing you to maintain control and flexibility over your money.
Don't get me wrong, insurance is absolutely necessary for asset protection. But many people go well beyond that, drinking the insurance agent Kool-Aid that it should also be used as an investment. Of course, the insurance agent makes a much larger commission then, but pay no attention to the man behind the curtain!
A primary example of unnecessary insurance is a variable annuity. (I could also pick on universal / cash value life insurance, maybe another day.) Variable annuities are insurance contracts that claim to offer a ‘guarantee’ that investors will earn something like 5% or more annually, regardless of market performance. In theory, even if the market value of the account drops, you will still be ‘earning’ 5%. Sounds great, right? With a closer look, most people won’t think so.
First off, the ‘guaranteed’ return is actually based on a hypothetical (not actual) account balance. This hypothetical balance is the minimum basis for a small annual amount that may be accessed prior to death. But to take full advantage of this ‘guarantee’ you have to keep your money tied up for a very long time – in many cases for 10+ years – and you lose the ‘guarantee’ altogether if you make excess withdrawals prior to then.
During this entire period, you are paying dearly for that ‘guaranteed’ return. The additional charges can be 1%-2% or more every year on top of the annual fee, regardless of whether you ever use the benefit. That’s in addition to the 1%-1.5% per year charge for administrative fees. And that’s in addition to the management fees of 1%-2% paid to the people running the actual investment sub-accounts. All in all, you could be facing annual fees of 3%-5% per year or more! That’s a real reduction in invested funds, as compared to the hypothetical ‘guaranteed’ return.
Finally, there is a low probability of needing the ‘guarantee’ in a variable annuity. Insurance companies know history, and historically, these products benefit the insurer. If a person desires a guaranteed lifetime income stream, this can be done far more efficiently and inexpensively through a basic fixed annuity.
So why are variable annuities sold? Because insurance companies make huge profits on these products, and in turn pay high commissions to the brokers who sell them. And while they are very complicated products – many people who market them don’t even know how they work – they are easy to sell to unsuspecting investors. Insurers and their salesmen know that in the current economic environment, people are scared, making them easy prey to purchase anything that looks like a guarantee.
Don’t let pricey gimmicks distract you. The expense of a variable annuity will produce a significant drag on performance each and every year. Your funds will be much better off in a low-cost, properly managed investment account. It may not be flashy, but it works, while allowing you to maintain control and flexibility over your money.
Thursday, June 16, 2011
Best Song Lyrics (Part VII)
When the Beatles took the world by storm in the 60s, I was too young to understand the frenzy. Consequently, I'm not the biggest Beatles fan, although I admire the incredible library of popular songs they compiled. A few even have meaningful lyrics!
When the Beatles broke up and went on their solo careers, I was old enough to appreciate their music, but I didn't care much about their generally mediocre success. (Possible exception was the commerical success of Wings with Paul McCartney.) Like many artists, however, now that they are either old or dead, I can appreciate some of their group and solo music.
The song lyrics that stand out for me today are from John Lennon's classic, Imagine. Good timing for this, since my last blog entry (http://streffblog.blogspot.com/2011/06/diminishing-returns-of-religion.html) basically supports what the song says. The last verse is a little too socialistic for me, so I excluded it, but the rest - just think about it.
Imagine there's no Heaven
It's easy if you try
No hell below us
Above us only sky
Imagine all the people
Living for today
Imagine there's no countries
It isn't hard to do
Nothing to kill or die for
And no religion too
Imagine all the people
Living life in peace
You may say that I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will be as one
When the Beatles broke up and went on their solo careers, I was old enough to appreciate their music, but I didn't care much about their generally mediocre success. (Possible exception was the commerical success of Wings with Paul McCartney.) Like many artists, however, now that they are either old or dead, I can appreciate some of their group and solo music.
The song lyrics that stand out for me today are from John Lennon's classic, Imagine. Good timing for this, since my last blog entry (http://streffblog.blogspot.com/2011/06/diminishing-returns-of-religion.html) basically supports what the song says. The last verse is a little too socialistic for me, so I excluded it, but the rest - just think about it.
Imagine there's no Heaven
It's easy if you try
No hell below us
Above us only sky
Imagine all the people
Living for today
Imagine there's no countries
It isn't hard to do
Nothing to kill or die for
And no religion too
Imagine all the people
Living life in peace
You may say that I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will be as one
Saturday, June 11, 2011
The Diminishing Returns of Religion
Anyone who has taken a basic economics class has been introduced to the concept of diminishing returns. In short, this is defined as the point at which an increased unit of production generates lower (not greater) unit returns.
This is also how I would currently define the state of religion, both personally and in the world. Putting more effort into it isn't going to improve things, and at least from a global perspective, it probably makes things worse.
Let's start with the personal. I've been a practicing Roman Catholic since childhood. This included 12 years of Catholic schooling, which in turn included 8 years of nearly daily mass atttendence. After 40+ years, I've attended church services many thousands of times. I long ago learned the routine, the readings, and the symbolism by heart.
So I have faith, and I consider myself well indoctrinated in that faith. The question is, what more is there to know? As long as I lead a life dedicated to respect and the betterman of man and society, it's difficult to see the marginal benefit of continued adherence to the recommended daily/weekly/annual religious rituals.
Plus, over the past several years I've come to realize that the church I follow isn't exactly a role model. Pedophile priests, as well as other politicized Vatican scandals, have conspired to turm me away. And the Catholic church's unrelenting dogma related to gender roles, celibacy, etc. haven't helped. The rest of the world is evolving, my church is not. (How did it ever progress out of the Crusades era?)
My personal religious beliefs take a back seat to the larger world view, however. The fact is, religion is Earth's #1 creator of wars. Name any past or present international military conflict, and you will find that differing religious beliefs are at its core. Hell, even our Civil War was essentially a morality-based disagreement over how humans should be treated.
This is not a good thing. It's maybe the irony of ironies that religion is supposed to give people a reason to live, and we mostly use it to explain why, how, and when people should die.
In spite of this, I do believe that religion is a net good thing for society. If nobody believed in an afterlife, our civilization would be pretty barbaric. We might still be clubbing each other in caves.
But from my perspective, we've reached the point of diminishing returns.
This is also how I would currently define the state of religion, both personally and in the world. Putting more effort into it isn't going to improve things, and at least from a global perspective, it probably makes things worse.
Let's start with the personal. I've been a practicing Roman Catholic since childhood. This included 12 years of Catholic schooling, which in turn included 8 years of nearly daily mass atttendence. After 40+ years, I've attended church services many thousands of times. I long ago learned the routine, the readings, and the symbolism by heart.
So I have faith, and I consider myself well indoctrinated in that faith. The question is, what more is there to know? As long as I lead a life dedicated to respect and the betterman of man and society, it's difficult to see the marginal benefit of continued adherence to the recommended daily/weekly/annual religious rituals.
Plus, over the past several years I've come to realize that the church I follow isn't exactly a role model. Pedophile priests, as well as other politicized Vatican scandals, have conspired to turm me away. And the Catholic church's unrelenting dogma related to gender roles, celibacy, etc. haven't helped. The rest of the world is evolving, my church is not. (How did it ever progress out of the Crusades era?)
My personal religious beliefs take a back seat to the larger world view, however. The fact is, religion is Earth's #1 creator of wars. Name any past or present international military conflict, and you will find that differing religious beliefs are at its core. Hell, even our Civil War was essentially a morality-based disagreement over how humans should be treated.
This is not a good thing. It's maybe the irony of ironies that religion is supposed to give people a reason to live, and we mostly use it to explain why, how, and when people should die.
In spite of this, I do believe that religion is a net good thing for society. If nobody believed in an afterlife, our civilization would be pretty barbaric. We might still be clubbing each other in caves.
But from my perspective, we've reached the point of diminishing returns.
Saturday, June 4, 2011
Bad Business
Years ago when I worked for a trade association, the powers-that-be (?) insisted that the annual meeting begin with a prayer. This might have been harmless except for the fact that the prayer was never non-denominational - the prayer-giver always invoked the name of Jesus Christ.
I always complained about this, not because I'm not Christian, but because it was ignorant. We were not a Christian organization - why assume everyone else was? It was pretty simple to conclude that not everyone in the room believed in JC, much less in God, and to throw this prayer in their face was just plain bad business.
With this as a backdrop, over the past few years I've paid particular attention to businesses that show their religious and/or political colors. Of course, it's OK for a private business to do that, but it is also relentlessly dumb to offend potential customers.
My best contemporary example of this has to be those businesses who insist on showing Fox TV in their public areas. First, let's agree on what Fox TV is - a conservative, Republican-leaning broadcast network. Everyone knows this. Fox is to 'fair and balanced' journalism as 'The Beverly Hillbillies' is to a fair and balanced depiction of life in Beverly Hills.
So if a business has Fox on their TVs, one can safely assume they are conservative, Republican-leaning folks. That's fine, but that also tacitly means they don't care to have non-conformists as customers. At least that's what it means to me, and I'm happy to oblige them. It's crazy. Just put the TV on the Food Network or some other benign channel, and I won't think twice about patronizing your business.
Take this weekend, in which I spent time in a corporate tent at a golf outing. The Golf Channel was on every TV but one - which was on Fox. Now, I'm certain I was around a bunch of Republican-leaning folks, but to assume all of the clients there were of the same political/conservative bent is dumb. If people want the news, the can go somewhere else, or use their smart phones.
I don't know, maybe I'm making too much of this, but I think there is a lesson here for businesses: Don't assume everyone else believes the same things that you do.
I always complained about this, not because I'm not Christian, but because it was ignorant. We were not a Christian organization - why assume everyone else was? It was pretty simple to conclude that not everyone in the room believed in JC, much less in God, and to throw this prayer in their face was just plain bad business.
With this as a backdrop, over the past few years I've paid particular attention to businesses that show their religious and/or political colors. Of course, it's OK for a private business to do that, but it is also relentlessly dumb to offend potential customers.
My best contemporary example of this has to be those businesses who insist on showing Fox TV in their public areas. First, let's agree on what Fox TV is - a conservative, Republican-leaning broadcast network. Everyone knows this. Fox is to 'fair and balanced' journalism as 'The Beverly Hillbillies' is to a fair and balanced depiction of life in Beverly Hills.
So if a business has Fox on their TVs, one can safely assume they are conservative, Republican-leaning folks. That's fine, but that also tacitly means they don't care to have non-conformists as customers. At least that's what it means to me, and I'm happy to oblige them. It's crazy. Just put the TV on the Food Network or some other benign channel, and I won't think twice about patronizing your business.
Take this weekend, in which I spent time in a corporate tent at a golf outing. The Golf Channel was on every TV but one - which was on Fox. Now, I'm certain I was around a bunch of Republican-leaning folks, but to assume all of the clients there were of the same political/conservative bent is dumb. If people want the news, the can go somewhere else, or use their smart phones.
I don't know, maybe I'm making too much of this, but I think there is a lesson here for businesses: Don't assume everyone else believes the same things that you do.
Subscribe to:
Posts (Atom)