things kevin hates

In case you hadn’t heard, there’s been some sort of recession or financial crisis or something. I mean, I didn’t notice because I have a humanities degree (two of them, actually), so I wasn’t planning on having, like, an actual job or anything—I fully expected to be underemployed. Now, no one really knows how the economy works. It’s kind of like the weather—a lot of people make predictions, they’re usually wrong, but they still manage to keep their jobs. The only difference is that people who predict what the economy is going to do usually make a lot more money than the meteorologists. But a lot of individuals and corporations did horrendously stupid things and then wondered why they ended up in a huge gigantic mess. Now, you, dear reader, are probably not running a corporation, so I’m not going to bother with much advice there. But I will point out some of the stupid things people have done so that hopefully you won’t make the same mistakes.

1. Don’t buy a ridiculously expensive house and assume it’ll just keep going up in value. Look at this jack-ass who just happens to be the financial reporter for the New York Times. Moron. And Andrew Leonard, a writer for Salon who also covers finance and economics, even has the gall to say that individuals “do not deserve all the blame for living beyond our means — we were encouraged to do so and seduced into doing so by a host of characters, from Alan Greenspan to the biggest Wall Street bankers to the incorrigible telemarketers who never stopped calling.” This abdication of personal responsibility makes me sick. I’m not going to deny that tons of Wall Street bigshots did horrendously stupid, reckless, greedy, reprehensible things. They too abdicated their fiduciary responsibility—they’d get huge bonuses for making huge profits, and huge golden parachutes for making huge losses, so why wouldn’t they want to ratchet up the risk, regardless of what was in the best interest of the shareholders? Passing off blame and responsibility is the easy way out, whether you’re a CEO or you’re run-of-the-mill middle class. It is your responsibility not to do stupid crap with your money. That means living within your means, whatever those means are.

2. I hate when people go out drinking every weekend, eat a fast-food lunch every day, etc., and then bitch about how they don’t have any money. Break out the PB&J or ramen noodles for lunch. And buy some two buck Chuck or Bud Light or whatever at the grocery store and get your drink on that way. Much, much cheaper than having to pay ridiculous prices for drinks at a bar. Or see movies on the weekdays when they’re cheaper. Or go to the library and check out books instead of going to Barnes & Noble. Or make coffee at home instead of drinking some overpriced Starbucks concoction. The list of simple things you can do to spend less is endless.

3. I hate when people don’t save their money. I hate it even more when they say they don’t have any money to save. Yes, there are lots of people in this world who can’t save any of their money. But if you have the internet at home, you probably don’t fall into that category. Like I just said, go out drinking less and save more. And the younger you are, the more important it is that you save. If you’re a high school or college student with a part time job, or you’re just out of college and have a job, it is incredibly important that you save as much as you can ASAP, before you have to spend it on things like spouses and children and broken air conditioning units. And the extra time for your investment to grow is hugely important. If you’re 25 and you invest $4,000 a year for ten years, you’d end up with more money at age 65 than someone who starts investing at 35 and invests for thirty years. It’s hard to believe, but true.* If you have a job you can start an IRA (which should probably be a Roth, unless you’re making six figures) no matter how young you are, and being able to let your money grow for 40 or 50 years is a really, really good thing.

4. I hate when people who do save their money do horribly stupid things with it. As many of y’all may know, I rather fortuitously came into a fairly large sum of money a few years ago, so I had to learn pretty quickly about the best ways to invest it. In the course of my education, I was shocked to see that the vast majority of Americans—even the vast majority of very intelligent, college-educated, middle- or upper-class Americans—do horrendously stupid things with their savings.

First of all, don’t try to pick stocks. If you have a bunch of money saved up and you want to take 5% of your portfolio and pick a few stocks, fine. But don’t think that you can out-research the thousands of people who run mutual funds and pension plans and university endowments by doing some research on yahoo or morningstar or whatever.

Along the same lines, don’t try to pick active mutual funds (in an active fund, you essentially hire some Wall Street suit—or these days, a Wall Street computer nerd—to compete in stock-picking contests with thousands of others equally smart, equally hard-working Wall Street suits and computer nerds). Some funds have done better than others, but that doesn’t means they’ll do better in the future—they may very well just have gotten lucky. You’ve probably heard the disclaimer, “Past performance is no guarantee of future results.” Nowhere is this more true than in investing. Maybe you get lucky and end up with a better-than-average fund, but it’s just as likely you’ll get unlucky—studies have consistently shown that a mutual fund that tops the charts, even over a five- or ten-year period, rarely stays at the top for the next five or ten years. And active funds have higher expenses. You’re much better off buying index funds from a low-cost company like Vanguard than trying to pick funds.** With index funds, you basically own a piece of every single company in the market—so you guarantee yourself an average return—which sounds ho-hum, but is actually pretty damn good. And since the costs are lower than the average mutual fund, you actually guarantee that you’ll perform better than the average investor.

Also, don’t panic! We’ve seen a nasty downturn lately, but selling when you’re down only locks in losses. What you need to do is develop a good mix of stocks and bonds depending on your age and various other factors, then stick with it over the long haul. Or, you can just select a fund that has a target date set for when you plan to retire, and it automatically changes its balance for you. If you have no clue what you’re doing, you don’t need to have a clue! Just buy whichever fund is closest to when you plan to retire. Investing done. It really is as simple as that. You don’t need to check the stock market every day and agonize about the economy. You just keep investing and let your money work for you.

If you’d like more info, the most comprehensive introductory book I know of is The Bogleheads’ Guide to Investing.*** An even easier read is The Coffeehouse Investor. You should be able to pick up either book at your local library.

And if you have any questions, feel free to ask. Obviously I’m no professional—though I did ponder switching to a finance major halfway through college—but I think the lack of knowledge about debt, investing, and personal finance is one of the most serious problems facing America. The mess we’re in right now would have been avoided had people saved their money and not piled debt on top of debt. So I’m happy to do what I can to help.

* Okay, given a very, very low enough interest rate it wouldn’t be true, but in all likelihood it will be.

** All of my mutual funds are at Vanguard and I can’t recommend them strongly enough. Unlike virtually all the other mutual fund companies out there, Vanguard is owned by its clients, not by a for-profit management firm. So the mutual funds’ only expenses are what it actually costs to run them—you’re not paying for a fund company’s profits. This means their expense ratios are a tiny fraction of what other companies charge.

*** The title comes from John Bogle, the founder of Vanguard and the originator of the first index fund. The devotees of his low-cost, long-term, index-heavy approach to investing call themselves “Bogleheads.”