Obama's More Perfect Union

Checkout this link to the full video of Obama's groundbreaking speech on Race in America. I actually expected this to be a response to controversial and anti-American remarks by Obama's pastor, but it turned out to be a honest, thoughtful dialog on race in America.

My favorite quote (This was in response to calls to disown his pastor):

"I can no more disown him than I can disown the black community. I can no more disown him than I can my white grandmother -- a woman who helped raise me, a woman who sacrificed again and again for me, a woman who loves me as much as she loves anything in this world, but a woman who once confessed her fear of black men who passed by her on the street, and who on more than one occasion has uttered racial or ethnic stereotypes that made me cringe."

Fact: people are complicated, that’s just the way the world is. We really get into trouble when we try to reduce people to just good or evil, black or white. Its just not that simple.

This speech is about 40 minutes, but you should definitely watch it in its entirety.

The Video

The Transcript

Index Fun(ds)!

Over time, the stock market has averaged about a 10% return annually.

This is a frequently quoted, often misunderstood, investing cliché. It is, however, valid. I’ve been researching strategies to achieve this great return, and apply it to building long term wealth. Before I get to what I found, I think a more practical way to state the above is:

A well diversified portfolio of stock, historically and in the long-run, averages about a 10% return annually.

Let’s take a closer look at what this means.

Well diversified – you will not get the 10% return in the long run by simply buying popular stocks, or buying stocks that you feel good about. Diversification is choosing stocks in a way that will minimize your exposure to fluctuations in the stock market. Done properly, you can significantly reduce the risk in your portfolio with minimal negative impact to your returns. The math behind this can get complicated, but for now let’s just say it means buying stocks from different companies and different industries.

Historically – The 10% return is based on the average of a long market history. The past is no indicator of the future, but it can often provide clues and trends that we can act on.

The long-run – This implies buying and holding. Yes, this is boring and requires Zen-like discipline, but to fully take advantage of the general upward trend of the markets, you will need stick through the ups and downs. How long is long-run? I would say a period of longer than 10 years. Since in this article I’m stressing long term financial security, I personally would be keeping this investment strategy for 30-plus years. Don’t try to micromanage your portfolio! If you have a long term strategy for investing it is wrong to look at your portfolio at the end of the month (or even worse at the end of day), and compare it to some benchmark index like the Dow Jones or the S&P 500. Short run analysis on long run strategies will yield little helpful results in critiquing your investment strategy. Successful strategic investing is a long-run process.

You may be thinking an easy way to get a long-term diverse portfolio is just to buy a traditional mutual fund, right? Right idea, but the problem with most mutual funds is that they are actively managed. Which means some of your returns will be paying for the large salaries of fund managers and analysts who are constantly buying and selling stocks to try and improve fund performance. Mutual Fund managers very rarely outperform the market over the long run, in fact, partially because of fees, 80% will underperform. Let’s consider another investment strategy.

To avoid the costly mutual fund managers while still retaining the benefits of diversification and time, your best bet would be to buy into an index fund, which is passively managed. An index fund is a special type of mutual fund that allocates stocks in a way that will closely follow the movements of an index like the S&P 500. Because the stocks in an index change very rarely, little management is needed to run them. Minimal management costs mean larger returns for you.

FYI, 10% isn’t the highest return you can expect with the index fund strategy; you can change your expected return based on your risk tolerance. If you want to try for a higher return, you can find indices that will shoot for higher returns at the cost of increased volatility, or risk. The opposite is also true; you can get an index that may only earn a small return, but will provide less risk. If you are still young, you may want to opt for a slightly riskier investment strategy because you will have a longer time to reap the rewards. However, if you are retiring relatively soon, you probably want to protect the money you do have and stick with less risky index funds.

What investment article would be complete with a amazing compound interest example?

Let’s say you are 25 now, and you want to retire at 55. If you start off with $0, and put $10,000 a year into an index fund returning 10%, you will have about 1.8 Million when you retire! Cool right? Want to test out some different possibilities? Here’s a simple calculator to play with:

Compound interest calculator

Further Reading

Index Funds

The S&P 500 Index Fund

Off The Record?

Thanks Facebook, now I can’t run for president.

Done in by a single message. The text wasn't too incriminating, but it was certainly not something I would want to explain during any run for public office. The question I forgot to ask myself --and will not forget again-- was: who can/will be reading this?

The answer? Who knows. But in the worst case, everyone. Lets take a look into what exactly Facebook tracks about users. The following is from the Facebook Privacy Policy.

"When you use Facebook, you may set up your personal profile, form relationships, send messages, perform searches and queries, form groups, set up events, add applications, and transmit information through various channels. We collect this information so that we can provide you the service and offer personalized features. "
http://www.facebook.com/policy.php

Yikes! That means there is some database containing every message I have ever sent. Even worse is Facebook's policy about collecting "[information transmitted] through various channels". This was vaguely worded, but it implies that Facebook can do all sorts of neat stuff, like see which profiles you visit, and how frequently... creepy right?

Ok, enough with the "Big Brother" conspiracy theory BS, let’s get some concrete examples of the costs of wrongly assuming you're have privacy… Take for example:

Exhibit A

Kwame Kilpatrick

Busted, rather dramatically, when his text message history revealed a steamy love affair with his Chief of Staff...

Skip internet privacy, this next guy got caught with the wiretap. Yes, he fell for the oldest trick in the book.

Exhibit B

Eliot Spitzer

Forced to resign after allegedly spending the night with a prostitute. On the day before Valentines! Shame!

Exhibit C

Tony Soprano

My man Tony Soprano wouldn't be setting up shit like that over the phone, no way.

Exhibit D

But this Tony Soprano look-a-like might...