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"Hardship and Hope" by Victoria Sherrow - Book Review

January 7th, 2019 at 12:56 pm

Hardship and Hope- America and the Great Depression walks you through day to day life as the stock market collapses, jobs are lost, welfare runs out, the government throws out experimental programs, the programs bring hope, economic hardship persists, productivity jumps to support the war, and we remember the legacy. It addresses topics on many levels such as individual entertainment, racism, unions, ideological shifts, and survival methods.

Where I found it:
I found this book while browsing the very limited financial section of my local library.

What I learned:
Hardship and Hope was a very interesting read for me for several reasons. First, I think we are headed towards another severe depression. It was encouraging to see the human endurance. That when your surviving off the coal dropped from trains and eating mostly cabbage, you can still survive. It made me realize that humans can do anything.

Secondly, I learned accounts where government welfare saved people’s lives. Many New Deal programs were unconstitutional, funded by debt, and not terminated after the crisis subsided or set a bad precedent for future government programs. In the moment, Americans felt that capitalism and democracy had failed and allowed the legislative and executive branches beat out the judicial branch and have destroyed much (or even most!) of the intent of the constitution.

Despite my hard feelings for how Roosevelt dealt with the crisis by sacrificing what America is, a Harry Hopkins quote really stood out to me “People don't eat in the long run, they eat every day”. When faced with the Great Depression, the New Dealers weren’t thinking about the long run, they were trying to save the lives of families all across the nation. I guess this book helped me remember both sides of the story so that I can be better balanced when faced with proposed welfare programs that violate what America stands for.

I have a few problems with this book. For one, math people will be driven a little crazy because it compares sums to percentages and hourly wages to weekly wages. Without looking up population data or labor statistics of the day, many of their numbers are useless. Even the appropriately stated numbers are hard to put into comparison because we have no baseline for how much things were worth prior to the depression. The other problem that some of the points are presented in ways I disagree with, such as praising unions for ensuring that as profits are increased, wages are increased etc. The libertarian inside of me was definitely rubbed the wrong way at times. I thought it was healthy to see it from a new angle though. Overall, I was actually impressed at the presentation of facts without a political message. Sherrow did a pretty good job at staying neutral.

I recommend this book to anyone who wants a quick (only 110 easy print pages) glimpse into the past so that they can live a better future. I don’t know that this particular book is any better than others on the topic though. If your library doesn’t have it, try a different one or look up some research papers. I just like that it is short and walks you through the depression fairly chronologically.

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"The Big Short" by Micheal Lewis - Book Review

January 7th, 2019 at 12:48 pm

The Big Short is more like a biographical novel. It follows the stories of several people who spotted the signs of the oncoming 2008 financial crisis before there was any stress in the system. You get to experience their minds as they spot the absurdity, as the uncover immense moral hazards, as they struggle to find a profitable way to trade on the information, as they fight with investors who want out, as they make the victory, and how they deal with the aftermath of having bet on the demise of the financial world as they knew it. Some of the characters are very amusing, some are irritating, and some are foul. As backwards as it sounds this book captures the human element completely while at the same time discussing something as analytical as financial trading.

Where I found it:
I found this book while browsing the very limited financial section of my library.

What I learned:
The Big Short taught me how corrupt the system can get when moral hazards are present and how blind the big companies can be.

I was amazed by the clearly immoral tricks the loan originators and repackagers played to get their pools of mortgages an AAA rating. AAA! That’s the highest rating possible and better than our current US Treasuries (S&P downgraded US Treasuries to AA+ due to the debt ceiling crisis of 2011). They took a lot of low FICO loans who would most likely default and threw them in with the loans of immigrant workers who don’t have enough history for a low FICO score and only reported the average number, which was high enough to ensure no default. They didn’t care if the pools actually went bad or not because once the pool is sold off, the risk is on the new owner. All they cared about was volume. The more mortgages they sold, the more money they made. They made so many bad mortgages that one originator company had 20% of the mortgages default AT THE FIRST PAYMENT and had to take the loss themselves.

On the other hand, the rating agencies were lost. They didn’t have a model for these mortgages, so they accepted the model they were handed by the packagers. They loved it because rating agencies get paid per security rated. With companies buying up these AAA products in a feeding frenzy, they got a lot of things to rate.

Investment banks were just as lost. They didn’t really care what gave something an AAA rating, they just knew if they filled themselves up with something that wouldn’t default and had a good return, they’d make a ton of money. They snatched these up even faster than they could be produced, so paper mortgage backed securities got invented. The paper securities were not even backed by mortgages, just construed to mimic them financially.

Basically, there was a moral hazard at the beginning of a system as originators learned to game the system. They did it so well and the people later down the chain were so blind and poorly managed that it resulted in a massive financial bloom and rot on such a scale that it put the entire global financial system out of whack.

I loved seeing into the crisis. There were so many things to discover that I actually talked to people about it a lot while I was reading. Normally people aren’t interested in my random financial obsessions, but this one actually got some engagement. The discoveries were just so appalling that they had to be voiced and people are willing to hear reasons to blame. Not to mention, there were some pretty funny moments.

There aren’t many people I would recommend this book to. The beginning was boring, but the second half made up for it. A few parts are confusingly technical, but you can get the gist of it and move on. You don’t actually have to follow the author’s explanation of the paper mortgage securities, just know that they were cleverly construed. The biggest problem is that a few of the characters use the F word in every thought.

More [url=http://milly.savingadvice.com/2019/01/07/milly-book-reviews_217941/]Financial Book Reviews by Milly[/url]

"Total Money Makeover" by Dave Ramsey - Book Review

January 7th, 2019 at 12:37 pm

If you are in debt, this is the first place to start to get motivated and organized. It breaks down the process of going from sinking in a paycheck to paycheck (or worse) life to taking your extended family out on a cruise. The “baby steps” go as follows:

1. Save $1,000 for a rainy day
2. Pay off all debt (except your house) using the debt snowball technique
3. Finish off your emergency savings by saving up 3-6 months’ worth of expenses
4. Invest 15% of your household income in the S&P 500 (I’d put it elsewhere)
5. Set up a tax exempt college fund for your kids
6. Pay off your house
7. Give!

As you knock out each baby step, the next baby steps get easier because you’ve eliminated the drag of debt or at least have the savings to avoid putting on more debt. If you ever slip a step (you had to use your emergency savings for a broken car), just pause the step you are on and go back. You’ll find yourself getting to the later steps faster and faster each time.

Where I Found It:
I think most people looking at finances have come across this book. Dave Ramsey is the recognized lead for getting out of debt. I figured I couldn’t write about finances unless I’ve read it, so I picked it up off the shelf at the library and read it in an RV on a stormy beach.

What I learned:
There was very little in this book that I didn’t already know. It had a few things in the later baby steps about taxes that I had never stopped and considered, but I’m not there yet anyways. What I LOVE about this book is how motivating it is. It made me almost wish I had more debts just for the adventure of getting out of them. He made it that exciting.

I also learned that Dave Ramsey’s method isn’t perfect. He really doesn’t have much a clue when it comes to the later steps. That’s okay though because when he tells a broke person that you can expect to get a 12% return in the S&P 500 (try [url=http://milly.savingadvice.com/2018/02/13/what-to-expect-from-the-sp-500_215025/]4% or less[/url]!) they’ve probably got years before it matters. Maybe it is helpful in motivating them to get out of debt faster and maybe it doesn’t matter since investing 15% is the commonly accepted responsible thing to do anyways.

This book is amazing at getting you motivated and there is a ton of wisdom in the baby steps. I got a little bored with the stories, but they are in boxes and easy to skip. I HIGHLY recommend this book to anyone in baby steps 1-3. There are some major problems with the later steps though.

One thing to note is the 12% he claims you should expect from the stock market is completely absurd. Get through the other baby steps first, but do more research when you get to the investment part. [url=http://milly.savingadvice.com/2018/02/13/what-to-expect-from-the-sp-500_215025/]Please read why the S&P 500 is not a great investment[/url].

Actually, don’t trust any of Dave Ramsey’s numbers. Even his $1,000 emergency savings in baby step #1 is off. I don’t disagree with $1,000, but $1,000 in 2003 (when the Total Money Makeover was first written) is equivalent to $1,362 in 2018 if you believe government published inflation data. If you want to assume a 5% inflation (like I do), that $1,000 is actually $2,079. I’m not saying that you have to have $2k in the bank before you should look at paying down you debts. I’m saying that you have to choose for yourself what number will keep you and your family from bouncing back to the credit card with every unexpected expense. Write that number down and work towards it. Then, even though you’re only sitting on a thin cushion, start attacking that debt aggressively.

I also disagree with the children’s college saving as step #5. Sure, it would be great to have money set aside for education, but my oldest is only 5 and there is a lot of uncertainty shrouding the topic.

Ramsey talks about state programs where you pay for college early so you don’t have to worry about future price increases. What if you move across the country? Now your kid has to move far away just to go to a state college. What if state colleges are overly politicized or immorally overly politically correct by then? Speaking of politics, tuition itself has become a huge political issue. I think it is just as likely that state colleges are free in 15 years.

Looking at the last 15 years and assuming things only accelerate, I’ve decided to pay my house off and get myself financially secure first so that I can afford whatever tuition at whatever school I’m asked in the future. Maybe that is silly since the money is very transferable and if I decide I’m really not going to use it, I can even withdraw it (taxes will apply). I just want to focus on the known first. If I have solid footing, the rest won’t matter as much.

Note: My husband actually sent money home to his family while in college and I only received financial help from mine the first year. We both graduated from college debt free.

I recommend Dave Ramsey’s “Total Money Makeover” to just about anyone and especially those who don’t see how they can make it financially or are in the early “baby steps”.

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"If you Can -How Millennials can get Rick Slowly" by Bernstein - Book Review

January 7th, 2019 at 12:26 pm

This is a [url=https://www.etf.com/docs/IfYouCan.pdf]FREE PDF[/url]!! Read it Now! If you want to learn the 2 step lazy man's way to invest with better returns than professional investors, this one is for you. It is only 16 pages long and only takes about 20 min annually to execute. The PDF will take you through the theory, the steps, the pitfalls, and how to overcome your obstacles.

Basically, it teaches you to invest like this: Set up 3 investment funds (US stocks, foreign stocks, bonds) and fund it with a certain percentage in each (typically 1/3rd in each). Every year rebalance the ratios between your funds so that they are back to what you intended (such as 1/3rd in each). You can choose different percentages based on your aggression/risk tolerance or even have it shift towards bonds as you age. The percentages are up to you, just leave it alone except for tweaking it annually and you will do fine.

Where I found it:
I came across the PDF while surfing the [url=https://www.bogleheads.org/wiki/Getting_started]BogleHeads website[/url].

What I learned:
I finally understand why balancing portfolios increases your returns. If something is going up, it is probably becoming more overvalued so you sell some off while it is high and put that money into something that still has growth ahead of it. If something goes down, it is probably becoming discounted, so sell some of your higher valued positions and put that money into scooping up the discounts. If you maintain a specific percentage of your portfolio in each category you decide to invest in (US stocks, precious metals, foreign stocks, bonds, etc.), you will naturally adjust more optimally. It just takes guts to stay the course. Don’t leave your money to grow longer in any category just because it is hot right now and don’t be afraid to “buy the dip” when things go down.

Anyone who is interested enough to have read this far is definitely interested enough to benefit. Seriously, just click the link. It’s short and it’s right [url=https://www.etf.com/docs/IfYouCan.pdf]here[/url].

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