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In 2003, I started Consumerism Commentary to teach myself more about personal finance and to track my progress as I strove to be financially secure. This was already a few years after my personal “rock bottom.” At the turn of the century, after a few years of letting my net worth as well as other aspects of my life decline, I realized I needed to turn everything around. From a financial standpoint, I attacked the problem from two sides: cutting back my expenses and figuring out how to earn more income, while at the same time, evaluating the other main decisions I’ve made with my life.

Almost eight years later, I’m still publicly reporting my financial progress on a monthly basis.

In April, I traveled with my girlfriend to visit family in California. From a business perspective, I was able to relax and not do as much as work as normal while allowing a number of guest authors to contribute the bulk of content on Consumerism Commentary for the week. In reality, I was still hard at work, spending several hours a day working on issues behind the scenes. Towards the end of the month, I also moved Consumerism Commentary to a new web hosting service. The improvements won’t be noticeable to everyone, but the improvements will be very significant behind the scenes. For those interested in the technical details, I switched from dedicated virtual hosting at MediaTemple to dedicated virtual cloud hosting at Amazon.

From an expense perspective, my vacation-related expenses were higher this month, as well as expenses related to birthdays. My girlfriend’s birthday was last week, and I treated her to entertainment and dining in Manhattan, as well as some other gifts.

On the income side of the equation, I have nothing to say but good things. I don’t share the gory details of the income I earn from my projects here, but there is no doubt that leaving my day job to focus full-time on my own business was the right choice and that I should have made the jump sooner. It might be slightly coincidental; there are market forces at play as well, in addition to some aspects of the internet that are beyond my control. Keeping this in mind, I am remaining cautious about the future.

Here are the numbers, subject to change as more information becomes available, followed by some comments. Read the full article →

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Are Stocks Too Risky?

This article was written by in Featured, Investing. 28 comments.

When it comes to investing for the future, there appears to be an interesting dichotomy. The typical financial advice marketed to the middle class — upper and lower — calls for long-term growth through investing in the stock market. The typical sales pitch — and I use “sales pitch” as a general term, not necessarily something you hear from a salesperson, but often you do — mentions or implies an almost guaranteed return of 8%, sometimes 10% or 12%, over any thirty-year period. For many people, the stock market is their only hope for collecting enough wealth for retirement.

For the most part, wealthy people have a different approach to building for the future. Owning companies and investing directly in businesses, when successful, are much more successful than investing in the stock market. Don’t forget that a lot of investors of this type fail or go bankrupt. Occasionally they continue trying until they become one of the success stories, but often, survivorship bias dooms them to oblivion forevermore. For those who succeed, once that wealth has been built, goals turn towards eventual retirement and the cessation of the hard work of diligent company-acquiring or fervent CEO-ship. It’s not the stock market for these folks, however.

One of my favorite examples is Suze Orman. She is one of the most popular television personalities, and she doles out financial advice on television, on radio, and in her books. She, like most other financial advisers and planners, looks towards the stock market for long-term growth — for those who have the stomach to sit through short-term volatility. Peek inside her own portfolio, and you might find a different story. Suze prefers investing the bulk of her wealth in super-safe municipal bonds, triple-A rated, rather than stocks. The information on Suze’s portfolio is now a few years old, and it’s quite possible she may have shifted her asset allocations and changed her diversification, but the information is relevant. In 2007, just 4% of Suze’s non-real estate portfolio was invested in stocks — at a time she was recommending an allocation of mostly stocks to callers her same age.

Of course, age isn’t the only consideration. 4% of Suze’s portfolio in 2007 amounted to $1 million, and that amounts to larger exposure to the stock market than most middle class workers. Though I’m sure she wouldn’t like to lose $1 million, she could certainly afford to. She can take this small amount of risk. She doesn’t need to build up towards retirement; Suze could retire today and live off bond income for the rest of her life.

In light of the volatility in the stock market following the earthquakes and tsunami in Japan, analysts are saying the stock market is now too risky for investors. The risk doesn’t change depending on market condition, however. The risk has always been there. There is some kind of association in the bran that makes people think that when stocks are going up, stocks are the best methods of building wealth, while when stock markets are volatile, they are bad. The equity market doesn’t change characterization overnight. The same rules apply — there is always risk in the stock market. Those who can afford to take the risk do so appropriately. Others who believe the stock market is their only hope for a comfortable retirement invest because, thanks to the financial planning industry, they believe they must. Those who don’t want to take this type of risk run companies and acquire businesses. There is risk in that, as well, and in fact those who do are often more exposed, but most have determined that bouncing back is possible and are willing to put the work in the promise for greater returns than the stock market and, perhaps more importantly, never being required to put the bulk of their money at risk again.

Do you believe that owning companies and investing in businesses is a better way to prepare for retirement than investing in the stock market, even index mutual funds? Is the stock market just too risky today?

Photo: Cyron

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When one thinks of earthquakes in the United States, California is usually the main target. The San Andreas fault line is well-known for powerful quakes. There are others located within the United States that, although they haven’t caused severe seismic activity in the most recent century or two, could produce earthquakes resulting in severe damage. The New Madrid fault line in the mid-west, a fault line in South Carolina, and possibly most dangerously in terms of population, a fault line in New York City, are at risk for causing damage through earthquakes. The architecture at these locations is not as seismically designed as some architecture in California — where, in turn, the architecture is not as prepared for earthquakes as in Japan.

Damaging earthquakes in these regions of the United States other than along the San Andreas fault line are possible but not likely, so watch out for hype in the news media, an industry that is often quite happy to fan the flames of fear. Regardless of the probability, it might be worthwhile to develop an emergency plan so your finances have a better chance of surviving a disaster.

1. Have a passport. You never know when you’ll need to leave the country. In times of a national emergency, you may be able to leave without documentation, but having a passport will make this process easier at any time. My passport expired a few years ago, and I have the documentation to have a new one created. I’ve procrastinated setting up the appointment to have this process completed, but I don’t plan on waiting much longer. Receiving a passport can be a long process if you’re not interested in paying a fee for expedience.

2. Have a stash of cash at home. When financial advisers, professionals and amateurs, talk about emergency funds, they are usually referring to savings accounts at banks. There may be an emergency circumstance that prevents you from reaching this money in a timely manner. It might be helpful to keep a good amount of cash in your home, in an unlikely location to avoid the possibility of losing it during a robbery. Cash on hand is the first component of a comprehensive emergency fund.

3. Contact and account information for your insurance policies and bank accounts. You’ll want to have this information in a location you can easily grab if you have to run out the door, but not so convenient that it could fall into the wrong hands. Thinking ahead about the type of information you’ll need to have with you to survive a disaster as financially secure as you were before might lead you to the idea that it’s better to consolidate your financial accounts to keep it simple. This is my plan for the next few months. I’ve lost count of all my bank accounts, many of which I open to review for Consumerism Commentary. It’s time to consolidate and simplify.

4. Your wallet with ID and credit cards. You most likely have this already; make sure you grab it as you run out the door.

5. Keep gasoline in your car’s tank. In previous disasters, there have been problems getting gasoline. Gas stations run out, and people fleeing are sometimes forced to abandon their vehicles. Mass transit systems can break during the stress, as well. Having transportation ready to go in case of an emergency will help you get where ever you need to go.

What else do you need to ensure your finances will survive a disaster?

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Updated March 16, 2011. If you have been paying attention to the media, you most likely saw terrifying footage of tsunami waves destroying much of the eastern coastal areas of Japan, particularly Miyagi prefecture. Friday’s earthquake measuring 9.0 magnitude on the Richter scale triggered massive waves that leveled homes and farms, left thousands missing, forced an evacuation of the area surrounding a nuclear power plant, and triggered estimates of ten thousand killed. The natural effects extended to the west coast of the United States, where strong currents affected some ports and waves forced evacuations of some areas.

In addition, the Fukushima Dai-ichi nuclear power plant was affected by the disaster, with some injuries to employees after an explosion and a call for surrounding residents to evacuate.

When devastation hit Haiti in 2009, Americans wanted to help those affected by devastation. Unfortunately, unscrupulous individuals worked hard to take advantage of the good will. Soon after the disaster, there were many websites collecting funds purportedly for assistance. Unfortunately, many were simply scams, designed to take people’s money. There will surely be similar websites designed to trick well-meaning individuals into parting with their money.

If you plan to support the relief efforts in Japan, consider sending money to legitimate, international organizations that focus on humanitarian aid during crises. Don’t give food or supplies; it’s best to let the aid organizations decide what materials they need and when they need it. As with any charity, though, the exact dollar you send today may not go directly to Japan. Many organizations already have funds committed to relief. Your dollar will go to replenishing the money that is currently being spent.

The American Red Cross is already on the scene in Hawaii and the U.S. west coast, and has pledged financial support to the Japanese Red Cross. You can donate $10 to the Red Cross by texting “redcross” to number 90999. If you prefer to make a larger contribution, visit the American Red Cross donation center. “Your gift to the American Red Cross will support our disaster relief efforts to help those affected by the earthquake in Japan and tsunami throughout the Pacific. On those rare occasions when donations exceed American Red Cross expenses for a specific disaster, contributions are used to prepare for and serve victims of other disasters.”

Japan sits on the intersection of three tectonic plates and is thus no stranger to earthquakes. In fact, Japan’s infrastructure, at least in the cities, is particularly suited to withstand most major earthquakes, more so than the rest of the world, including California. The death toll could have been much higher with less sophisticated engineering, but this is no comfort to those displaced, hurt, or killed by the tsunami. As Japan is well-prepared, the need for international assistance is not as great as it would be for a developing nation.

UPDATED. Doctors Without Borders (Médecins Sans Frontières) has been assessing the situation, and is now providing mobile clinics on the ground in Japan. “Although injured people had been evacuated by helicopter from these areas, many elderly people were still there, some of whom were dehydrated, the coordinator said… MSF is now identifying specific needs — including oxygen, non-food items, medical items and water — and will work with Japanese authorities to assist these populations.” The organization is currently not soliciting donations for this effort, they are drawing upon previous donations that have not been earmarked for a specific cause. If you’d still like to donate to MSF, in the United States, visit the organization’s website.

Oxfam has yet to determine whether Japan has a need for this international organization’s assistance. Usually, Oxfam reserves its support for areas of the world that would not be able to support recovery on their own. Japan is a wealthy notation, and has been charitable when other nations needed assistance. Many governments, including that of the United States, have pledged support, but unlike recent disasters, Japan has the ability to handle much of the recovery.

UPDATED. The International Medical Corps is actively working in Japan right now to support the government’s response efforts. To provide $10 in support, text MED to number 80888 or donate online.

Keep the above in mind when considering your donations. Give only to organizations that have 501(c)3 status — not because of the tax deduction, but because of the requirement of public accountability.

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Best of Consumerism Commentary, January 2010

by Flexo

Wrapping up the first month of the year, I’m not quite convinced I’m on the right track yet. I spent most of this month without much time for myself. I suppose it’s a good thing I’m not responsible for any other person than myself. On the other hand, January was a great month for Consumerism ... Continue reading this article…

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Donations For Haiti Relief Will Be Deductible For 2009 Taxes

by Flexo

Earlier today the House of Representatives passed a bill to encourage more charitable contributions for recovery in Haiti. Once this bill passes the Senate and is signed into law by the President, and I expect it won’t be long until this law is official, those of us who have donated or will donate cash before ... Continue reading this article…

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Safe Donations to Victims of the Earthquake in Haiti

by Flexo

Yesterday, a magnitude 7.0 earthquake struck Haiti, with the center only less than ten miles from Port-au-Prince, the capital of the country. Of course, the news of the devastation has been everywhere in the media. Major landmarks have been destroyed by the disaster, including the Presidential Palace and the Port-au-Prince Cathedral. Haiti is a poor ... Continue reading this article…

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Bad Time to Invest in Southern California

by Flexo

According to some scientists who study earthquakes and tecnocis, the past 300 years has been a relatively quiet period (the “interseismic period”) for the southern part of the San Andreas Fault. They believe this period is coming to an end, and it’s not a question of if a major earthquake would hit southern California, but ... Continue reading this article…

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