Overemphasis on quarterly earnings?

by WCE

This article discusses emphasis on quarterly, rather than long-term, earnings. This is one of the biggest changes at my employer in my career. Managers used to be focused on technical aspects of projects and developing people, and now they spend a lot of time managing quarterly finances. (Cash flow is not an issue at the company.)

How to Stop Short-Term Thinking at America’s Companies

My favorite fact was one I’ve tried to find unsuccessfully in the past: 8% of stocks were held by institutional shareholders in 1950 compared to 70% of stocks today. I don’t know how 401(k) accounts are considered in that allocation, but pension funds will definitely have their returns affected by any increase in corporate taxes.

Despite the emphasis on profitability, the S&P including reinvested dividends has had historically moderate growth for the past couple decades. Since I opened a 401(k) in ~December 1998, the S&P (with dividends reinvested) has increased by 3.0% annually after inflation. Is there any agreement on the long-term expectation and whether this is expected to be typical? I’ve long been skeptical of the graphs by financial planners, but I’m 20 years into my career and I’m even more skeptical. Or am I missing something?

Calculator here:
S&P 500 Return Calculator, with Dividend Reinvestment

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124 thoughts on “Overemphasis on quarterly earnings?

  1. “Since I opened a 401(k) in ~December 1998, the S&P (with dividends reinvested) has increased by 3.0% annually after inflation.”

    You invested near a peak. This would be more problematic if you did only a one-time lump-sump investment. So yes, your first contribution from Dec, 1998 has only earned 3% annually (after inflation).

    But a more applicable analysis assumes the old dollar cost averaging. The following is what I took from that calculator for lump sum investments from January of the indicated year until now:

    98 – 4.29
    99 – 3.04
    00 – 2.51
    01 – 3.26
    02 – 4.56
    03 – 6.78
    04 – 5.42
    05 – 5.63
    06 – 5.6
    07 – 5.08
    08 – 6.3
    09 – 13.2
    10 – 11
    11 – 10.43
    12 – 12.53
    13 – 12.08
    14 – 8.46
    15 – 6.00
    16 – 17.95

    That, plus inflation, doesn’t look so bad.

  2. I’m taking this from what I did in Excel. Let’s say WCE made a $25,000 lump sum investment every January since 1998 into S&P 500 Index fund. Using the percent return, after inflation, for each year, this is what each of those $25,000 lump-sum investments would be today, but in 1998 dollars (so they’d actually be higher).

    98 – $55,532.94
    99 – $42,859.32
    00 – $38,103.60
    01 – $41,768.99
    02 – $48,800.43
    03 – $62,632.37
    04 – $49,652.28
    05 – $48,237.79
    06 – $45,524.28
    07 – $41,033.70
    08 – $43,325.08
    09 – $67,408.00
    10 – $51,904.00
    11 – $45,338.01
    12 – $45,110.91
    13 – $39,450.50
    14 – $31,896.92
    15 – $28,090.00
    16 – $29,487.50

    Sum it all up, and you have $856,000 in 1998 dollars.

    Force that into an equation for the effective average return, and it’s 4.56% after inflation.

    I roughly calculate inflation since 1998 at just about 2% annually, so you’re looking at a 6.5% return, which is about what *they* say, conservatively.

  3. The focus on quarterly earnings has been increasing as time has passed. It can be hard to both invest in the long term and generate short term earnings. Investors tend to tolerate no or low earnings at start ups, but after that they want to see the money. It is hard to have a product/service/strategy that allows for the quarterly earnings after having invested in long term investment for the company.

    I think a lot of retailers are suffering because the model of what people want and how they want it is changing, but their model of shopping experience and service hasn’t. Stores and in person shopping used to be how you knew products existed, what they cost and why you might want them. The only real changes I have seen are the “consolidated” checkouts rather than by department. Now there is the internet. I see more people shopping because (1) they need to determine fit (clothing) or some physical characteristic of the item (how the couch feels to sit on), (2) the sale is only at the bricks and mortar store, or (3) time/cost of shipping is more than going to get it in person. I think most retailers have not invested in the long term to figure out how to keep/get peoples business.

  4. I don’t remember if Rhett or anyone else linked to this a few weeks ago:

    The Champions of the 401(k) Lament the Revolution They Started
    The dominant vehicle for retirement savings has fallen short of its early backers’ rosy expectations; longer life spans, high fees and stock-market declines

    The original proponents of 401ks now say that they regret assuming investments would rise by 7% a year because that was too rosy a scenario.  However, we have a serious problem of underfunded public pensions that are still allowed to assume 8% returns, plus unrealistic discount rates of 8% in calculating future liabilities.  As far as I know, private companies would never use discount rates that low.

    An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion

    I used to work in financial planning years ago when we would generate hypotheticals showing 12% annual returns.  I don’t think that’s allowed nowadays.

  5. Hmm … I’m sure there are differences of opinion on this:

    “Ultimately, the purpose of a company is to serve society, and in doing so shareholders will equally benefit over time,” he told me. Many heads of companies, by contrast, believe that they have a duty to serve shareholders, and hope that the company will benefit over time.

  6. A corporation has a duty to maximize value for shareholders. It would be nice if that could be done by not effing over the rest of society, but that is where things like laws and regulations come in to play.

  7. “8% of stocks were held by institutional shareholders in 1950 compared to 70% of stocks today.”

    Well, yeah. Mutual funds numbered ~70 in 1950 and held about $900 million in assets.
    In 1957 the total market cap of the S&P 500 was ~$175B, so mutual funds held about 0.5% of that.
    Today the S&P500 market cap is $19TRILLION and mutual funds have a value of $3.5T (18%). On top of that are pension funds, insurance companies, investment banks, all of which have grown and become larger parts of the economy in the last 65 years.

    Also, having worked in Fortune 20 companies for a big chunk of my career stretching back to the mid-80s…no quarter is ever more important than this quarter. This short term-thinking is not new at all.

    The “long term” expected return before inflation varies. Some places/advisors use as high as 8%. Other more conservative places use 6%. I use 7-7.5% for my financial plan that has me retiring in 8 years. (The last 10 years have seen a 6.9% return per this calculator https://dqydj.com/sp-500-return-calculator/ ). If I can get 9% I can retire in 7 years.

  8. I am interested – when y’all do your financial projections/planning, what rate of return do you assume?

  9. There are some companies that don’t give guidance like Google (or Alphabet).

    I assume different rates of return for different portfolios (although they are probably too optimistic). For our after tax all stock portfolio I assume 11.8% including dividends (which I read is the annual return of the S&P for a long time period). For 401Ks I assume 7% because they are a mix of stocks/bonds/REITS. Real estate appreciation I put in 3%.

  10. Our TIAA financial planner guy just does Monte Carlo simulations and then says, “Here’s an optimistic outcome, here’s a pessimistic outcome, truth is probably somewhere in between.”

  11. WCE,

    Per Milo’s comment you’re only getting 3% if you put a lump sum in in ’98 and never added another dime. If, as I presume, you dollar cost averaged, you’re returns are higher.

  12. The original proponents of 401ks now say that they regret assuming investments would rise by 7% a year because that was too rosy a scenario.

    The even bigger issue is the actual returns not the theoretical returns. I’ve mentioned before 35 year old co-workers with all their 401k money in a money market account. Then you have people taking loans, pulling money out for a house down-payment, chasing out when they switch jobs, etc.

  13. We assume that inflation and returns will balance each other out and so assume a rate of return of 0. Yes, insanely pessimistic, but since the vast majority of our returns are in land, which seems to be in a bubble at present, it might work out ok.

  14. Excluding real estate appreciation, our investments, including the current cash accounts and tax deferred and after tax , have earned 7% pretax since I retired 3 plus years ago. (The town house has appreciated 50% in that same time span, after being nearly flat 6 years from the purchase in 07. Amazing). I calculated this the simple way – took the balances the day I retired, saw that they totaled exactly the same amount on 12/13/16, and looked at the yearly withdrawals (various kid transfers, charity, trips, home improvement) which averaged 7% of the opening balance per year. Day to day and paying off the mortgage came out of non investment income. My weighting is probably like most of the 40-55 year olds among you – much heavier on the equities than used to be advised to seniors.

  15. Milo, thanks for those calculations. Your point about dollar cost averaging is well-taken, as are others’ points about Monte Carlo analysis.

    One of the problems with using annual returns and then back calculating a typical/average annual return is that a drop of x% requires an increase of y%, where y= x+z, to get back to where you started. (If the market drops 30%, it has to increase by 43% for you to get back to where you started. This is roughly what we saw during/after 2009.) Also, from a personal point of view, the stock market tanked at the same time my twins were born, so I wasn’t contributing/was minimally contributing during the period when shares were “on sale”. On a population basis, more people are going to be unemployed and not contributing to 401(k)’s during recessions, so there is an expected effect on the average 401(k) return, even though it doesn’t affect S&P return.

  16. I usually use 4-5%, but the time horizon is still pretty long, so it’s all fantasy at this point anyway.

    I am not surprised that Fred says this is nothing new. I remember coming out of college into my first Finance job & being shocked at how important each Quarter was with a mad scramble to find $$ at the 11th hour.

    This was not the case at the one private company that I worked for, but it has been the same at every publicly traded one. First off – it’s the Street like the article says. But I’ve also observed that it has to do with how much turnover there is in senior management. At the companies where there’s a new VP/SVP/EVP/CEO every 18M to 2 years, the culture promotes short-term thinking even more because senior leadership needs quick hits to “make an impact” and build their resume quickly for the next rotation.

    I think this is one of the things that I hate the most about Corporate America – we make a lot of decisions that are really dumb long-term for the sake of this quarter’s numbers. And the layers of bureaucracy needed to manage that is astounding sometimes.

  17. “CEOs think they have to put shareholders first, but they can put the interests of society first, if they choose.”

    Yeah, no, they can’t. No. Nonononono. Even if the Board didn’t fire you outright, the company would get sued, you’d lose, and *then* you’d be fired. Corporate law just about everywhere in the US says that the job of management — the primary purpose for which the corporation exists — is to maximize shareholder value. Now, you can argue that that should be measured over years instead of months, or that Issue X should also be pursued because it will help support shareholder value over the long term. But put anything else first, you and the company are done.

    Which, IIRC, is why there has been something of a movement to allow a “socially-beneficial” kind of corporation, where maximizing shareholder value does not need to be the #1 priority of the company.

  18. But I don’t use 7% in planning. I use -2% on the after tax accounts and break even overall for the next five years, since my personal non investment income is almost nil until I hit 70 and SS kicks in. (DH’s pension can cover the household expenses, but he a tightwad so it is easier just to pay a lot of things myself and not to argue about HBO). That allows for two new cars this year. 2017 vacations have been prepaid. We’ll see about 2018-21.

  19. ” Also, from a personal point of view, the stock market tanked at the same time my twins were born, so I wasn’t contributing/was minimally contributing during the period when shares were “on sale”.”

    I had the opposite experience where DS was born in 2008, but earlier in the year. We opened a 529 plan for him in Q4 at the very bottom of the market. The total annual average return on that account is still insanely high. We got lucky – so far. We didn’t try to time it or anything, it just happened that we finally got all our sh*t together to open it at the end of the year. Over 20 years of working, my 401(k)/IRA’s have seen lots of ups & downs.

  20. “Now, you can argue that that should be measured over years instead of months, or that Issue X should also be pursued because it will help support shareholder value over the long term. But put anything else first, you and the company are done.”

    Right. I don’t have any issue with the fact that shareholder value should be the #1 priority of any corporation within the law, but what is the time frame over which that is measured? As a shareholder – I want it to be long term, but I don’t know if that puts me in the majority or the minority.

  21. Ivy – unsettled area of law. Some judges (in Delaware) have held that it should be maximized over the long-term. Others have held that you can’t favor one group of shareholders over another (short term investors over long term investors or vice versa). Still others have held that there is discretion as to what is favored.

  22. “I am interested – when y’all do your financial projections/planning, what rate of return do you assume?”

    I assume the “we are not saving nearly enough” rate of return. :-) In terms of future projections, I particularly like Milo’s metrics.

    “On a population basis, more people are going to be unemployed and not contributing to 401(k)’s during recessions, so there is an expected effect on the average 401(k) return, even though it doesn’t affect S&P return.”

    @WCE, I think this is very astute. I have long been fascinated about why “people” don’t do as well as the “market.” I know all of the behavioral economic arguments (which totally make sense), but it strikes me that there are some structural factors built in, too. For ex, your note about the stock market is the same thing I have observed about the RE market — whenever we moved, the RE market was relatively depressed, and we bought into a higher market. Why? Because we were moving from where the jobs aren’t to where they are. So it’s almost a built-in buy-high, sell-low. I don’t think it’s a coincidence that our financial trajectory took a sharp turn up at the same time as we managed to stay put for coming-up-on-13 years now.

    I have similar concerns about retirement, because in the world of 401(k)s, I think there is a built-in bias for people to retire near a market peak. E.g., usually people think of a target number to pull the trigger for retirement. Most people are going to hit that number at some point during a bull market, not a bear market/recession, because they are relying partly on the growth in the market to get there. But since the market is largely cyclical, that bull market will very likely be followed by a bear within a year or two. Which means it’s more likely than not that people will face a drop in the value of their portfolio early in retirement, which is of course exactly the scenario that provides the worst outcomes for portfolio longevity. So the “solution” is to retire in a bear market, which is of course counterintuitive and very difficult to do (because if you have a target number, you would likely have pulled the trigger when you first hit that number on the way up, instead of waiting to hit it the second time on the way down).

  23. ““On a population basis, more people are going to be unemployed and not contributing to 401(k)’s during recessions, so there is an expected effect on the average 401(k) return, even though it doesn’t affect S&P return.””

    Yeah, that’s a very good one.

    I’m kicking myself thinking that we made way too large of a down payment when we bought the house. It would have been the perfect time to sink that cash into index funds. But that’s not realistic, either, because if that had been the plan, we wouldn’t have held it so long in CDs.

  24. E.g., usually people think of a target number to pull the trigger for retirement.

    Do you think this is more of a factor, or age?

    I’m fascinated by factors that go into retirement decisions.

  25. “In terms of future projections, I particularly like Milo’s metrics.”

    The thing is, I really would be just as happy — in some ways, even happier — in that small boat with the outboard. Outboards are SO. EASY. to manage. The adventures would just be a little more like boating/camping, and less “yachting.” But not worse, by any means.

    “…So the “solution” is to retire in a bear market…”

    Maybe we should be more like Joshua Kennon and think in terms of underlying annual earnings. Those can still be problematic, for sure, but it’s better than waiting to hit The Number. So Retirement is when Required Annual Spending = (Account Value)*(something like 0.8 safety factor)*(P/E)^-1.

  26. The adventures would just be a little more like boating/camping, and less “yachting.” But not worse, by any means.

    You should watch last Sunday’s Simpsons. It was a spoof of The Great Gatsby. One of the lines was, “Welcome to wealth, where mansions are called cottages and getting drunk on a boat is called sailing.”

  27. “Which means it’s more likely than not that people will face a drop in the value of their portfolio early in retirement, which is of course exactly the scenario that provides the worst outcomes for portfolio longevity.”

    Well, you can self-insure against that. Simply. On the day you retire, move all, yes, I said all, your retirement assets to cash/money market/bank or brokered short term CDs/ultra short bond fund(s). Assuming the assets are in some kind of a IRA/401k/403b arrangement, no tax consequences to doing so. Then slowly, like over the next 2-3 years, rebalance into an equity/fixed income mix that is appropriate for your risk tolerance. For some that could be 20% stock/80% fixed/cash for me it’d probably be more like 50/50 when I’m done reinvesting.

    If the equity market skies at the beginning of my retirement period I’ll lose out on that upside, but I’ll have little to no downside loss exposure.

    Long term, minimizing the downside is at least as important as making sure to capture (some of) the upside.

  28. My aunt is a financial planner and they tell people to put 3 years of expenses in cash upon retirement so if the market drops you don’t have to sell anything.

  29. Well, you can self-insure against that. Simply. On the day you retire, move all, yes, I said all, your retirement assets to cash/money market/bank or brokered short term CDs/ultra short bond fund(s).

    I was going to say the same thing.

    Long term, minimizing the downside is at least as important as making sure to capture (some of) the upside.

    I would say that once you retire, minimizing the downside is probably more important than capturing the upside.

  30. “Well, you can self-insure against that. Simply. On the day you retire, move all, yes, I said all, your retirement assets to cash/money market/bank or brokered short term CDs/ultra short bond fund(s).”

    You might very likely hit your number in 1996, halfway up the great climb, take it all out and miss much of the rest of the way up, they you’re fully re-invested just in time for the crash.

    Maybe if the median Totebagger couple wants to retire with $5M, they should just put one million into an immediate annuity for a nice, safe $60,000 to live on (the house is paid off), and leave the rest in stocks for fun money.

  31. I ended up on a Dave Ramsey forum, and I thought of Rhett and how he describes the intelligence of the average American and their ability to handle 401ks. I wonder how retirement will change as people in retirement depend more on their own investments in 401ks versus pensions. Also being on that forum brought home even more the bubble I live in. Wow.

  32. I agree with Milo that for many of us, taking risk with money that we don’t need to live on and considering inheritance effects may be important. My Dad isn’t wealthy, but he spends his pension/401(k) money and seems to be leaving the stocks alone to be used either for medical care or for us to inherit with a stepped-up cost basis upon his death.

  33. Which, IIRC, is why there has been something of a movement to allow a “socially-beneficial” kind of corporation, where maximizing shareholder value does not need to be the #1 priority of the company.

    You mean B corps? They aren’t just theoretical. If I’m looking for something that falls in the usual “gift” range, I start with UnCommon Goods, wich is a B corp. http://www.bcorporation.net/b-the-change

  34. “Also being on that forum brought home even more the bubble I live in. Wow.”

    I feel that way sometimes, and then I read that 20% of all undergrads at a bunch of fancy, moderately selective colleges come from households where the TAXABLE, REPORTED income is over $630k!!!

  35. “put one million into an immediate annuity”

    Please look into annuity payouts before you do this.

    Using Milo’s #s, if you get a $60k payout, that means it’ll take 16y8mo to use up the $1M at 0%. If you just put that $1M in a bank savings acct you can build the $60k annuity stream for yourself and retain 100% control over the rest of your money. By then, the other $4M you had when you retired will have grown to $7.78M at 4%.

    Me? I prefer retaining control over my hard earned money rather than giving it to an insurance company to invest and pay back to me over time.

  36. Fred – I’m probably jaded by the fact that I’ve only really paid attention to this stuff during very low-interest-rate times.

  37. Yeah, ok, let me be clear: I am not worried about *us* retiring at a market peak and then having to resort to eating cat food (although, to be fair, cat food does play far too large and irrational a role in my retirement fears). Hell, we will probably do a 7-year bond ladder before we take a step out the door.

    I was musing on the sort of structural issues that WCE had noted about the kinds of factors that, on average, affect Americans. So we now have many more people who are not only in the market, but on their own making decisions about retirement, with varying levels of knowledge/interest. And it strikes me as more likely they will retire when the market looks good, because, hey, look, we did better than expected, between our investment accounts and what I get from SS at 62, I can afford to retire [X] year[s] earlier than I thought — woo-hoo!

    Since that discussion seems much more likely to happen at/near a market peak than at a trough, it seems almost built-in that, on average, more people will see their portfolio drop in the early years of their retirement than will see it rise, and they may not have the knowledge/background/training to take the defensive measures discussed above (or they may not be able to afford to — imagine the same guy above assuming a 6-7% withdrawal rate, because he knows enough to know that “the market has historically returned 10-11% on average”).

    Tl;dr: I think more people will face a down market early in retirement than the various Monte Carlo simulations assume, because those simulations don’t account for when in the market cycle people may tend to retire (assuming they have a choice). Ergo, more pessimistic projections/defensive measures may be warranted.

  38. LfB, based on how many of my fellow contractors are early retirees working because they retired at the wrong time, I completely agree with you.

    Finn and I have talked before about how we considered the cost of graduate school from the standpoint of the opportunity cost and time-value-of-money in our early 20’s. I think we are the exception rather than the rule.

  39. “You might very likely hit your number in 1996, halfway up the great climb…”

    Absolutely true. And for me, personally, I cannot see going 100% to cash etc. as I outlined above on day 0 of retirement. Maybe to 80%, retaining some capacity to capture equity market growth.

    Also, btw, had you moved from 100% equity to 100% 30 year T-bills in 1996, you would have made out like a bandit as interest rates fell for the next 20 years!

  40. You can get a brand new three-bedroom, 1,000 sf mobile home for $35,000. $35,000!!!

    I know this is tangential, but have you ever looked at how much it costs to rent a pad for a trailer? It’s stupidly expensive. I’m not sure why trailers are supposed to be so cheap.

  41. “I = I”, according to Hegel.

    And Rocky Mountain Stepmom = Smarta$$. That’s why I like you.

  42. On the expense of living in a mobile home–I would think the insurance would be high (and required for a loan), and wouldn’t HVAC costs be high as well? There was a librarian at the university where I taught in TX who lived in a trailer (not by choice, because that’s what her salary could afford). I could ask her.

  43. “where the TAXABLE, REPORTED income is over $630k!!!”

    I’m aware of off-shoring, but wouldn’t most people with incomes anywhere near that level mostly be careful not to trigger an audit by something like not reporting income according to the law?

  44. S&M

    Tax evasion is illegal, tax avoidance is not. People with taxable income over $630K have accountants/lawyers/whatnot to make sure that not all their income is taxable.

  45. Cordelia — I emailed you about a week ago, but I’m not sure if I have your correct email address. I was wondering if you received it.

  46. “I would think the insurance would be high (and required for a loan)”
    Eh. Insurance is always required for a loan. And how high can it be if total replacement value is only $35k?

    “and wouldn’t HVAC costs be high as well?”

    Compared to what? A new-construction rambler? Yes. LfB’s house? Hell no.

    You can also just buy a lot and get septic and electric.

  47. You can get a brand new three-bedroom, 1,000 sf mobile home for $35,000

    My early-60’s BIL works a job that involves lifting a lot of heavy equipment. He has had two heart attacks and a stroke in the last 18 months, but due to divorces from sketchy women who took out a lot of credit in his name, he is bankruptcy. We are looking into buying him a trailer so that he can live on just his social security, if he can find a plot of land to make it work.

    This weekend I met with my parents to go over their finances and plans. Social security covers all of their basic spending, so they only have to touch their nest egg for property taxes, home projects, and gifts. That included travel as well, until the recent health issues. After talking to them, that is my goal. The nest egg will allow them to move into the cruise-ship style senior living if they want, without having to draw down more than the required minimum distributions. The key difference with them is an excellent employer-sponsored Medicare supplement policy that has them paying almost nothing for healthcare. I don’t know if we’ll have that when we retire.

  48. SM – What I mean is that it doesn’t even include unrealized capital gains, or real estate depreciation on rental properties, etc.

  49. You can also just buy a lot and get septic and electric.

    I think I want to move to Virginia. Engineered septic (required here) costs $40-50K. Electric costs $5k for a pole and meter, if you have electric to the site, if not, bringing in power can get a little pricey. Cost per acre???? Depending on the minimum lot size, in my county 40 acres, that could be a little expensive. If you need septic, you probably need a well, $10-15K.

    Might be easier to just rent an apartment.

  50. I do worry about how those without pensions, who aren’t putting anything close to the amount needed to retire ever away, and are living paycheck to paycheck (both those who make so little to avoid this and those who spend so much to maintain the lifestyle they deserve), are going to make it in retirement. At some point, they will have to retire due to physical or mental limitations. How will that affect our taxes, medicare, and other social services?

    My personal observation is a single parent at my DD#2 school. She works for $16 an hour, does not carry health insurance (pays the penalty because it is cheaper), only started putting about $100 a month in an IRA in the last 5 years, and is in her mid-40s. She thinks she will be able to save more money when her DD graduates HS in two years as she expects she will allow DD to live at home, but DD will have to pay all other costs – car insurance, gas, own meals out, clothing, etc. – and will have to either have financial aid for college or will have to work to save to pay for it. Even if she sunk all those “savings” into her retirement, it will not be possible to retire in 20 years.

  51. Are you all fearful of spending any of your principal during retirement? Do your plans consist of living on earnings and only dipping into principal for emergencies or very unusual situations?

  52. AustinMom,
    If that single mom is like the members of my hair stylist’s extended family, she will move in with her DD or grandchildren.

  53. Milo, I doubt most people who purchase a mobile home with the intent to live in it could get anywhere near the terms on a loan that you’d get.

  54. So $35k for the trailer, 15k for the well & septic, 10k (?) for the land. Then there are electricity and some kind of electronic communications, either running a cable or buying a sat. dish. Didn’t the topic come up as an alternative to buying a house?

  55. SM – true, which is why they rent them. But LfB *could* get favorable terms, which was my original point.

    I found a single family home in that area for $89,000. It’s not glamorous, but it’s functional. Spruce it up with new carpet, linoleum, and some pillows from Target, and it will look good. Add a stamped concrete patio out back… (This is why I should be a landlord)

  56. Scarlett – In this particular case I think DD is likely to get as far away as possible as soon as possible, which is following in her mother’s footsteps.

  57. My pet non spend is not buying a new car. Yes, I badly want a shiny new one with all the bells and whistles but then DH says things like – why do you want to spend the money, your car works fine, no payments every month…blah, blah. And so I carry on, not happily since I have major car envy.

  58. Louise, DH is not the boss of you. You are such a saint. I’d be patiently pointing out (over and over and over) that we’d have plenty of money for a new car if HIS RELATIVES weren’t leeching off us.

  59. Well, she could get them now, irl. I was thinking of the nightmare cat-food eating LfB

    If anyone here likes salmon, you should go easy on it for a while–the CDC has found Asian tapeworms in Alaskan salmon

  60. Oh, Milo, re the house: yes. my point was that they are available for the same price as a trailer, once you add in pad rental or the purchase and engineering of land.

  61. In retirement I don’t plan to increase principal. So that is why break even is my goal as long as DH is alive. If I out live him, I have chosen to pay out his son’s share of the house net realizable value at his death even if plan to residing in the house for many more years (in a tax efficient manner, of course.) So that will reduce liquid principal. Beyond that, I agree with WCEs Dad or my Mom . Make sure there is enough to fund my hypothetical last years of round the clock custodial care or an excruciatingly long life span. If neither of those come to pass, I hope to leave the same amount to my 4 kids as an inheritance as I got from my Mom. The real estate is a good inflation hedge.

  62. “Do your plans consist of living on earnings ”

    No. Unless you mean meeting basic annual needs with earnings/pension and then spending the principal on other things.

    When DH & I get worried about the future/markets/savings/jobs, we remind ourselves that we could retire TODAY if we moved next door to my parents and lived off the interest on our investments, MMM style.

    @Kate – that is very interesting. I hadn’t thought about the legal perspective as much as the long-term corporate strategy for growth/profit perspective.

  63. @Milo on January 19, 2017 at 2:07 pm —

    OK, now I feel like throwing up. Kinda sorta only half joking — this is where my family comes from and what I spent my whole life moving away from. Can you please go back to posting pretty boat pictures? Pretty please?

    But, yes, I do know it is irrational, which is why I used the word “irrational.” :-) And I know it’s possible to get by on much less — my mom was complaining the other day because she had just figured out that in 2016 she had $30K in spending* (and $90K in estimated taxes — she was complaining about the taxes, not the spending). And this was the same conversation in which she also complained vociferously about having to take out RMDs instead of just letting the money stay put there forever. And yet she still fears becoming a bag lady. So, you know, by comparison, I am normal. :-)

    *Spending includes taxes/upkeep on three houses and all personal expenses, travel, etc., but does not include business travel/meals, which probably covers at least half of her meals.

  64. “my point was that they are available for the same price as a trailer”

    You’re probably right, or at least they’re not that far apart. Especially if you consider that the house probably ages a little better.

  65. “Are you all fearful of spending any of your principal during retirement? Do your plans consist of living on earnings and only dipping into principal for emergencies or very unusual situations?”

    Guess what my answer is? :-)

  66. LfB, if you’re going to furnish your trailer/cheap concrete slab house from Target & Ikea, you’d better hurry. And I need to return those lamps I bought last night ;)

    I don’t know if I’d heard of Ikea when I was in my 20s It entered my consciousness gradually, as that store that (German) university students go to.

    https://www.earnest.com/blog/shopping-at-ikea/

  67. ” Can you please go back to posting pretty boat pictures? Pretty please?”

    You know what’s interesting about that 4% boat? There are no hull penetrations, so there will never be any leaks. It’s just one, big simple undisturbed sheet of aluminum (oh yeah, aluminum, too, so no gel coat to deteriorate). Obviously, the outboard engine is the main factor that allows that, vs. a shaft coming through the bottom of the hull. But notice also the RV-style air conditioner mounted on top of the roof. The reason is so that you’re not sucking in seawater for HVAC or generator cooling. The big downside here is that it’s some sort of cassette toilet. I’d have to get used to that.

  68. Louise. I got a new car this summer, trading in a minivan that was a mere 4 years old. Apparently our extended family did not approve, because my 11 year old niece, clearly parroting her mother, said to me “Tell me Aunt Lark, why did you think you needed a new car already?” (My niece is as innocent and sweet as the summer day is long. She had no idea how much she gave away with that one sentence.)

    I took her aside and told her (paraphrasing here) that an important financial lesson is knowing the difference between a “want” and a “need.” I told her I absolutely didn’t need a new car. But, I work hard, I earn good money, I drive a lot, and I like cars. I had saved my money for it, and I wanted it, so I bought it. And if you work hard, and you work smart, you’ll be able to buy not just things you need, but also some things you want. And it’s okay to do that.

    I think you need to have this same conversation with your husband. It’s okay to buy things along the way.

  69. Lark, you get the Tactful Person of the Day award. My mother is related to LfB’s mother, and I’m just beginning to learn the lesson you kindly gave your niece.

  70. “you’re more likely to buy from IKEA when you’re 24 than at any other time in your life”

    Wow — I knew I was a late bloomer, but this? :-) I didn’t even start shopping there until 25-26 — and still do. The problem is it’s a trek for us — it’s 30 minutes away and on the other side of the Harbor Tunnel toll, and I am not going to make that kind of commitment unless something seems “worth it” in terms of savings, and/or where the style will actually matter — e.g., new drapes for the downstairs, the new entertainment center, storage sets for the kids’ rooms, the new couch for the kids’ playroom, etc. So we do pick up a number of things at Lowe’s, Best Buy, and Home Depot (two of which are within 1-2 miles of home, the third of which is DH’s second home — gee, guess which is which?).

    But all else being equal, I would buy all of that kind of stuff at Ikea. You have any idea how much I’ve saved over the years by not having to buy “real” furniture? :-) (Totally offset now by all of the “nice” stuff we have bought or DH has made, of course. But when I really don’t care and just need a thing, I’d rather it be a cheap/cool-looking thing).

  71. Just another way I’m backwards. Ace Hardware isn’t mentioned here, but it’s in the category as Home Depot & Lowe’s. I remember thinking of an Ace as “my” store in my mid 20s. I thought long & hard before ordering a doormat there for nearly $30, but got lots of tools, hardware, etc there.

    Lark, for decades, the IRS didn’t require milage records. If you said a car was for work, it was, and it was fully depreciated/ready to be traded in after 4 years.

  72. Lark, that’s great. I get to justify my new car as a safety measure. In totebag new England a 12 yr old camry with a few dents and less than 100K miles is practically new.

  73. Louise, you deserve a new car every year for all you put up with from your inlaws.

    And her FIL should buy it for her.

  74. “Yes. Yes it does. Also, “I = I”, according to Hegel.”

    Sorry, I was busy this morning and didn’t get to this thread until now.

  75. “If anyone here likes salmon, you should go easy on it for a while–the CDC has found Asian tapeworms in Alaskan salmon”

    I believe cooking or freezing will kill the tapeworms.

  76. Rhett – We’ve been watching from the beginning! I meant to share that on here. My DD loves it. The feminist in me likes that usually one of the three featured stories is a woman entrepreneur. I’ve also noticed that a number of the profiled men, who were certainly always skilled at their trades, genuinely credit their wives for their financial success for “keeping the books together” and in some way pushing the business toward organizational efficiency and expansion.

  77. “Finn on January 19, 2017 at 7:36 pm
    “Yes. Yes it does. Also, “I = I”, according to Hegel.”

    Sorry, I was busy this morning and didn’t get to this thread until now.”

    No worries, Rocky had you covered.

  78. I need to watch that blue collar millionaires show!

    I shopped at IKEA heavily in my 20’s. I don’t think I actually own any items from there anymore except hangers. They make nice wooden hangers for a good price, but it’s not worth the drive/crowds. So I probably did peak around 24.

    I’m surprised at the rest of the list. I wonder if wedding registries drive the Bed Bath & Beyond and Crate & Barrel registries to 30ish. And then when you get to the end, there’s more low end stuff again. (Rooms to Go?)

  79. I don’t see Pottery Barn which is favored by some I know. We have bought small pieces for the office and kids rooms from Target and those have held up well. For us at a certain point our house was furnished, we had all the kitchen ware we needed (and no more space in the many kitchen cupboards) so that has been it except for replacements here and there.
    I used to haunt Crate and Barrel in my 20s/30s.

  80. This morning I had an image of LfB as Lady Grantham meeting with her accountant in a study in a grand house. Then after that meeting taking out a can of cat food from her purse and discreetly throwing it in a decorative trash bin.

  81. Where to shop for stuff – We have friends who use IKEA in very interesting ways – closed in a porch and now converting to sewing room/guest room using a variety of products. It looks great!

    We bought last two kids beds there. DD#2 is was her first big girl bed. DD#1 it was her second. Her first actually just fell apart one day. We bought it somewhere else in a hurry and it wasn’t well made. IKEA is a trek for us, but we go if we are looking for something specific or are in that area (which is rare).

    Cool thing about Bed, Bath and Beyond is if you are shopping for you college dorm room that is located in say NYC, but you live in Texas, you can have it delivered to the NYC store and then pick it up. A former co-worker of mine did this. He said they even returned somethings they had already purchased because hauling them the long distance was more difficult.

  82. @Louise — hahahaha. But was it at least fancy upscale cat food?

    Funny, I have an image of your FIL presenting you with a a lovely new tricked-out Escalade with a big red bow on top. :-)

  83. Louise – I think you should use Lark’s response. I keep telling my kids that everyone values things differently and that shows in what they buy. As long as the spending doesn’t do harm to them or their family, they should derive the pleasure from what their purchases without a lot of grief from other people (family members included). I also tell them it is inappropriate to say something like – “Well if Louise hadn’t bought that car, then her FIL could have had a new boat.” Unless, FIL earns his living by fishing and now is unemployed because he is boatless.

  84. Thank you Louise, and Lark, and Meme, for reminding me of a reason not to have a husband!

    ?? What did I say that could be interpreted as a reason not to have a husband?

  85. Lark, sorry. You were defending your purchase against your sister, not your husband. And there’s not much we can do to influence whether we have sisters or not.

  86. The Bed Bath Beyond, Target and Amazon have changed how college dorms are decorated and stocked. It’s no longer necessary to rent a U haul or worry if you forget stuff.

    It’s easy ( but dangerous) for kids to know they can just hit your Amazon account for any toiletry or a million other things they might need.

  87. The Bed, Bath and Beyond comment made me smile, because there is a two week period at the beginning of the year when I actively avoid Bed, Bath and Beyond, because the students are setting up dorm rooms.

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