What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five-word summaries. Click on the number to jump straight down to the question.
1. Ride the investment waves?
2. Trash bags and frugal advice
3. Raising entitled kids
4. Wedding registry mention on invitation
5. Carrying stuff on a bike
6. Money and anxiety
7. Removing rust without much expense
8. Why is whole-life insurance bad?
9. Spending more in retirement
10. High risk and high return
11. Missing out on life
12. Keeping money secure
In late July and early August, I went on a lengthy vacation across the Midwest with my family, most of it in Wisconsin. I had planned ahead so that the vacation could be virtually entirely “screen free” – and it was. It was a time for me to relax and refresh.
Since then, I’ve felt like a new person when it comes to writing. My day-to-day productivity is up. I feel less distracted. I’m not finding excuses to do other things when I’ve got a few articles written in advance.
This experience, more than anything else in my life, has really changed my perspective on workers and vacations. I used to have the feeling that vacations basically meant lost productivity and nothing else. It was a week or two where you didn’t work, so your total work output was reduced for the year.
After the past two weeks post-vacation, I no longer feel that way. I have been so productive in the last two weeks, I feel like I’ve “made up” some of that time. I wouldn’t say I was “burnt out” before that vacation, but more that my creativity and energy for writing had somewhat dried up from the daily and weekly grind of writing. That break refreshed the juices thoroughly, so now I’m producing stuff at a rate that I haven’t in a long while.
In fact, it won’t take all that long for me to make up for the time I spent on my screen-free vacation.
Employers, if you want to get the most out of your workers, give them some time to just completely refresh themselves. No smart phones, no constant email, no texting. Give them time to be themselves and reboot. Think of it as being much like sending in a very valuable piece of equipment for full maintenance and minor repairs; you’re not going to use that equipment during the repair period or else the maintenance and repairs won’t happen, right?
Employees, take your vacation time. You won’t regret it.
The funds in my Roth IRA through Vanguard have been tanking this year; should I sell and buy into another fund or ride the waves? I only picked funds with low fees, so im not sure if i even picked the right ones for me. All are target dated for about the time I plan to retire; 2045, 2050 and 2055. Is there a better way I should have picked funds?
No, you’re good. The problem is that you’re just looking at the short term.
The stock market doesn’t mint 20% returns every year. That’s not how it works. There are years where it goes up 20%, but then there are years where it gains nothing. There are years where it goes up 3% and years where it goes down 20%. It’s volatile. The reason to invest in stocks is that, over the long term, the average return is pretty high.
I’m going to use the S&P 500 as a proxy here for your retirement fund – since your retirement fund is likely made up mostly of stock mutual funds – to explain what’s happening. In 2009, the S&P 500 went up 23.45%. In 2010, it went up 12.78%. In 2011, it basically broke even. In 2012, the S&P 500 went up 13.41%. In 2013, the S&P 500 went up 29.60%. In 2014, the S&P 500 went up 11.39%. The average annual return over the lifetime of the S&P 500 is about 10%, give or take a little bit.
So, over the past seven years, all but one year has been above the long-term average. This is a year where things are balancing out and returning to the average.
I keep seeing over and over, though, that when you discuss using generic things, you constantly warn against using generic trash bags. I think you should offer some sort of caveat with that. Let me explain:
I’ve been using generic bags pretty much forever (don’t know if you’re allowed to print company names, but I get the Berkley & Jensen bags from BJs). I have NEVER had any problem at all with them bursting. I guess the things I put in my kitchen trash must not be as heavy as the things you put in yours. (And yes, I fill the bag pretty darn full!) Fortunately, that was my experience with trash bags BEFORE I read your cautions, else I might have taken your words to heart and never even tried them, and would have been buying more expensive bags than I needed all this time.
The point is, you urge us to at least try the generic version of something, but then caution against the generic garbage bags, and someone reading your constant warnings about trash bags might not even try the generic ones as a result, when it’s possible that they could serve just fine for them. They’d lose the opportunity to save a bundle over the long haul on something that might work just fine, especially when it’s for something that you’re literally throwing away.
I’m not saying you should stop saying they don’t work for you — it’s a good illustration that you shouldn’t stick to something that doesn’t make sense for your individual situation. But I do think you should follow that with the fact that they do work for some people and can save some money if your trash load doesn’t typically contain a lot of dense, heavy items. And if people’s trash does contain a lot of dense, heavy items, maybe it would prompt them to think about why. I found that the heavy things in my trash bags that might cause them to burst were food scraps such as vegetable peelings, things I was throwing out from the refrigerator, and paper. By participating in the county recycling pickup, starting a small compost bin, and learning to more efficiently manage the use of items in my refrigerator, I’ve noticed that the weight of our trash output is significantly lessened. For us, and possibly for many others, the generic version works great and I’m afraid your blanket statements about generic trash bags being inferior in quality could keep someone from reaping savings in that area.
This is absolutely true. You should try everything generic for yourself, whether it be trash bags or anything else, and make up your own mind about them.
I use trash bags as an example because they’re the one example I’m sure of where we tried a generic and rejected it because of quality. We tried at least two different generic and store brands over the years and in both cases the bottom split out of multiple bags, something that has virtually never happened with other bags. We found that if we filled the bags only about 70% full or so, they didn’t rip, but at that point, they weren’t nearly as cost-efficient, we had to remember to stop filling at that lower level.
That does not mean your experience with garbage bags will match mine. Different stores have different generic and store brand products, and they do vary in quality. I’ve found, for example, that almost all of the Target store brand items are pretty good, whereas other store brands can be really hit or miss.
Try generics, period. Garbage bags are just my one example where generics failed me. On the other hand, I can name dozens of instances where generics worked like a charm, from dish soap to flour and from ketchup to salt.
Wanted to share this with you:
I have a one year old and another one on the way and this is something that worries me a lot. My wife and I earn far more than any of our parents did and I am worried about raising my kids with an expectation of stuff and wealth.
What are you and Sarah doing to raise your children without these kinds of expectations?
For me, I think the thing that creates a sense of entitlement is when exceptional things become normal. It’s fine to experience some great things together and have some nice things, but when they become the norm, that’s the problem.
For example, we had an amazing vacation with our children last summer, so this summer, our summer vacation was camping in a state adjacent to our own. It was a summer vacation, but the experience wasn’t one that involved throwing money around at all. As they’ve grown older, they’ve started to receive far less gifts for holidays, but the individual gifts are nice ones, and we’ve worked with relatives to make sure that happens.
What matters is what you define as normal life. Is “normal” going out to eat, or is it eating a simple meal at home? Is “normal” going on an extravagant summer vacation, or is it camping with the family? Is “normal” a pile of presents, or is it one or two really thoughtful gifts? Your “normal” is how you determine whether your children have a big sense of entitlement or not.
My boyfriend and I are getting married in the spring so we are starting to plan out lots of details. We decided to make our own invitations and as we were designing them we began to wonder whether or not the invitation should mention where our gift registry is. Should we mention it on the invitation itself, or on a separate card, or not at all?
Honestly, if I were in your shoes, I’d send out a very, very simple invitation, along with a note to check out your wedding website. Before you send out that invitation, then, you should set up a great wedding site.
If you don’t know the first thing about setting up a site, you should try out . They basically take care of everything – all you have to do is supply the specifics, like names and details and pictures.
If I were to “re-do” our invitation strategy, I’d send out a very simple one with the website URL on it, then have a detailed wedding site that included answers to all questions, including the registry one.
How do you carry stuff around town on your bike? Do you use side bags of some kind or do you have a front basket? Trying to figure out how to eliminate a vehicle and a bike is part of that plan.
I have a rack on the back of the bike and a couple of really low-cost bags that attach to that rack, one on each side. This holds almost everything I might want to carry on the bike, up to maybe three bags of groceries from the grocery store.
There are some things I don’t buy when using my bike, like gallons of milk, but many vegetables and fruits and other smaller items work just fine with this setup.
I don’t know enough about bikes and bike racks to make a recommendation here, but a setup like this really isn’t all that expensive.
I have found that becoming more frugal has made me really anxious about money and I don’t know what to do about it. I used to just spend money and not really worry about it very much as I would just figure I would pay back any debts later. Well that worked out about as well as you could expect so I started to really pay attention to things and get things in order. Now though I have a different problem and that is when I go and spend money I start to get really nervous about it even if it is for something ordinary like groceries. I feel like I am making the wrong choice if I do not spend and making the wrong choice if I do and I get really upset. Not sure how to get past this but it is enough to make me want to give up on being “responsible” with my money.
My solution to you is budgeting. Sit down and assemble a budget that incorporates all of the spending you need to or want to do in a month. There are many, many guides out there for this – I actually recommend using . Figure out what you’re spending on each area of your life, how much you’re putting aside for savings, and so on.
Once you really know where all of your money is going, you shouldn’t feel guilty or conflicted about spending money set aside for food on, well, food. You shouldn’t feel guilty about spending money set aside for electricity on your energy bill. You get the idea.
I’ve found that this kind of anxiety and guilt comes from not stepping back and looking at the big picture for a while.
Any suggestions on how to clean up something that’s rusty without buying a bunch of expensive cleaners? (And while we’re at it how you can get rust out of clothes)?
The easiest tool around for removing rust that actually works most of the time is simply white vinegar. Take whatever you’re trying to remove rust from and soak it in some vinegar. Let it sit for a while, then clean it thoroughly. Do it again if you didn’t get all of the rust out the first time.
This works really well for things like rusty bolts. I’ll just stick the whole thing in vinegar and let it sit there for a long time. It also works well for clothing, as you can just soak the full rust stain in vinegar.
Now, this isn’t perfect. If it’s too rusty, nothing will save it; if your clothes look like a giant rust smear, it probably won’t look perfect no matter what.
I bought a whole life insurance package for my daughter a few years ago when she was born but now I read on your site and elsewhere that the only life insurance you should bother with is term insurance meaning that you don’t get any money out of it. Don’t understand how that makes sense.
Whole life insurance is a type of life insurance that does not have a term. It has a benefit that lasts until you die (provided you keep making the payments) as well as a cash value component that grows over time that’s similar to a savings or investment account.
That in itself isn’t bad. The problem is that what you get for the combo package here is almost never worth it and is virtually always far overpriced compared to buying a similar term policy and putting the remainder in a simple investment, like an index fund.
In other words, they’re not bad except for the price. You get what you’re paying for. It’s just expensive for what you get. You are going to wind up better in the long run if you buy a term life insurance policy and invest the difference in price between that policy and the cost of a similar whole life insurance policy. For a child, I wouldn’t even get the term policy – instead, I’d just put money for that child in a 529 college savings plan.
Financial advice seems to assume that a person will spend less when they retire but I think I will actually be spending more in retirement. When I make a list of the things I want to do like traveling the country and getting into woodworking, I see a lot of expenses that I don’t have right now. Yeah I will cut some but I am really going to be adding a lot. This makes me conclude that financial advice should be saying to save as much as humanly possible for retirement.
For starters, unless you’re flying around the world all the time and buying thousands of dollars in high-end woodworking equipment, I do think your expenses will go down.
I don’t know what you do for a living, but most jobs have a lot of expenses baked right in. There’s the cost of the commute and maintaining a car. There’s the cost of work clothing. There’s the cost of eating meals with coworkers and entertainment costs. There are travel costs at many jobs. Those were all baked in at my previous job and they actually added up to a lot, far more than I realized.
My commute alone was costing me somewhere around $15 a day. I ate out with coworkers a couple of times a week, which cost at least $10 each time. I traveled multiple times a year which, although the trip was covered by work, always incurred additional expenses. I had to dress well for work, too. There were also expenses like dinner parties and meals with coworkers and after-dinner drinks. It added up big time.
I’m not saying that there won’t be expenses in retirement, but you’d have to be doing some exceptional stuff in retirement to add up to those kinds of expenses.
It is pretty clear that things with low risk generally have a low average return and things with a high risk generally have a high average return. If that is true then why does anyone invest in the low risk things? If you can just sit on a high risk investment for a while it will eventually earn a high return right?
Let me give you an example of a high-risk high-return investment. You can invest $1,000. Half of the time, you’ll get $0 back in a year – a -100% return. The other half of the time, you’ll get $3,000 back in a year – a +200% return. On average, then, this is a 50% annual return investment. Pretty sweet. That’s a very high-risk high-reward investment.
If you happen to have a spare $1,000 laying around that isn’t doing anything, you’d probably jump in, right?
Now, let’s say that you absolutely need to have that $1,000 a year from now to eat. Half of the time, you’ll have nothing at the end of the year. That’s a very bad outcome.
It depends on what you’re risking, in other words. For some people, that $1,000 isn’t much of a risk in the big picture. For others, it’s a huge risk. That changes things a lot.
Let’s say, then, that we have a low-risk low-return investment. You put in $1,000 and at the end of the year, you’re guaranteed to get $1,050 back. That’s a 5% return, guaranteed, but it’s only a 5% annual average return on your investment. In that regard, it looks way worse than the other option.
However, if you need that $1,000 to eat, that 5% guaranteed return is going to look good. You know that $1,000 will be there for you at the end of the year, along with an extra $50.
In other words, the more you need money at the end of the investment period, the less risk you should take on. Yes, you’re going to have lower average returns by taking on less risk, but you have a much, much lower chance of having less than you need at the end of that period.
Do you feel as though you’re missing out on life by being cheap? If you are living on one salary as you claim, that means you have the ability to do things like travel all over the world if you wanted to or to have a spectacular home or even both (don’t know what salary).
There are more things I would like to do in my life than I will ever have time to do. You named one thing – there are many places in the world I’d like to visit. There are foods I’d like to try. There are books I want to read. The list goes on and on.
The thing is, that list is so long, I have to have some way to sort that list to figure out what I want to do today, or this week, or this year. I choose to, in large part, sort it by cost. What are the free or cheap things I want to do today, or this week, or this year? Believe it or not, that list by itself is longer than I’ll ever have time to achieve in my lifetime.
Sure, I could afford almost anything I might want to do, but why? If I have an infinite abundance of very inexpensive things that I’d love to be doing, why spend a lot of money on expensive things that I would enjoy? Why not save that money so I can weather whatever may come my way in the future? Why not be really selective about the expensive things?
I wake up every morning happy with my life and with the options before me. That’s all I can really ask.
How do you keep your money secure in public? Whenever I go anywhere I get paranoid about pickpockets but I think a money belt is just way too much work. Do you use a money belt every time you leave the house? If not, what do you do?
Most of the time, I leave the house with minimal stuff in my pockets. I might carry my driver’s license and one credit card if I’m driving somewhere. If I’m going to the local grocery store on my bike, the only thing I’ll carry is a house key and enough cash to buy groceries, which I’ll keep in my bag or on a lanyard around my neck.
If those things get lost or robbed, it’s not a huge deal for me. I can cancel one credit card and get my driver’s license renewed pretty quickly.
Basically, my strategy is to carry minimal stuff when I leave the house. That way, if I do get robbed or pickpocketed, it’s not a big deal. I can recover from it easily.
If I ever need to carry a lot of stuff, especially anywhere crowded, I use a money belt.
Honestly, if I lived in a city, I’d probably go around most of the time with just an ID card and a tiny amount of cash in a change purse on a lanyard around my neck and under my shirt.
Got any questions? The best way to ask is to 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.