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Men Choosing Fatherhood Over Careers

This article was written by in Career and Work, Family and Life. 6 comments.


Last week, I acknowledged recent survey findings from the Pew Research Center showing that women are beginning to value success in their careers more than men value their own. It’s a historical twist, brought about by the idea that women entering the workforce is no longer related to a necessity, but an innate desire. Women, as a group, have a higher level of education and are increasingly choosing to pursue a successful career path.

With young children at home needing care and an increasing cost of outsourcing that care, many families need to choose a parent to stay home while the other earns money with an occupation. Women are still subject to compensation inequity — again, as a group — but in an increasing number of families, the wife is out-earning the husband. The choice is often simply financial; whoever earns the most money or has the potential to earn the most continues in their career path, while the other parent stays home to care for the child or children.

Now that more men are staying home to care for their children while their wives concentrate on their careers, it’s easier to shatter one of the long-standing myths about fatherhood. Previously, men who chose to pause their path to career success were judged inadequate to survive in the world of business.

Men are raised to value work as their main source of worth and self-esteem. Society’s underlying message is that men who make sacrifices and choose family over career advancement do it because they can’t succeed at work. But we are at the beginning of an epic shift in cultural norms. More men are finding parenthood meaningful and that is raising the status of fathers. Some men are trading career advancement for time with their family because they value the fulfillment they find in fatherhood, not because they can’t hack it in the job market. More men than ever feel that being a good father is a significant accomplishment in life.

Child and fatherResults from a survey performed last year by the University of Nebraska indicate that 75 percent of men consider being a parent very important, while only 48 percent had the same opinion about having a successful career. It’s possible, however, that there is a new stigma against being overly concerned with financial success, and this psychological aversion to being associated with the stereotypical careerist might prevent people from answering in a survey in a manner the respondent might think reflects poorly on themselves. There’s a tendency, also, to answer surveys as if one is an ideal. In other words, I might answer a survey as if I were an ideal version of myself rather than reflecting a true self-analysis.

Even if that is the case, it reflects the idea that stay-at-home-fatherhood is now a more respected life choice than it has been in the past.

Having a two-income family is still a luxury, and when at least one of the two incomes is significant enough to afford a solid living for a family of three or more, it’s a blessing. Most middle class families, when both parents are working out of necessity, it’s the ability to stay home with the children that is a luxury. It can be a difficult choice, particularly if one parent’s income is roughly equivalent to the cost of day care for his or her child or children.

The argument fails to consider yet another reality of life: one parent, either a father or a mother, struggling to earn an income and take care of one child or more, without a spouse for support.

For men: Would you put your career on hold — possibly forever — if it made more financial sense for you to stay at home with your children?

For women: Would you be willing to pursue your career full steam ahead while your partner develops a closer bond with children through more time spent with them during formative years?

Photo: Chris. P
Fathers Forum, CNN, BabyCenter

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Most Wealthy Individuals Earned, Not Inherited, Their Wealth

This article was written by in Wealth and Affluence. 19 comments.

When I first read The Millionaire Next Door by Thomas Stanley and William Danko, it didn’t inspire me. It’s not that I disagreed with the authors, but I found the book uninteresting. It was one of the first financial books I read after beginning Consumerism Commentary, and it came highly recommended from readers here and participants in The Motley Fool‘s community.

Without getting too much into my problems with the book, I will say that the idea that a “millionaire” is more likely to be your local business owner rather than someone born into a family of money was new to me.

Recently, PNC Wealth Management conducted a survey of people with more than $500,000 free to invest as they like, a fair definition of “wealthy,” and possibly “millionaire” once you begin including home equity and other assets. Only 6% of those surveyed earned their money from inheritance alone. 69% earned their wealth mostly by trading time and effort for money, or by “working.”

Here are some interesting statistics I pulled from an article discussing the survey results.

  • 36% of earners and 27% of heirs are concerned about an economic recession.
  • 77% of earners and 67% of heirs believe they have a lot of control of their financial future.
  • 39% of earners and 21% of heirs are moderate or risky investors.
  • 75% of earners and 50% of heirs have less stress thanks to their wealth.
  • 51% of earners and 33% of heirs believe their wealth has led to increases of happiness.
  • Heirs are twice as likely to believe that their wealth causes more problems that it solves.
  • 37% of earners and 25% of heirs believe that luck played a major role in their financial success.

For me, the choice is clear. There is only one option if I want to find myself with $500,000 of investible assets: earn rather than inherit.

[Yahoo Finance, MarketWatch: Earnings Growth]

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Harry Browne’s Permanent Portfolio

This article was written by in Investing. 20 comments.

This is a guest article by Jacob, creator of the personal finance blog, My Personal Finance Journey. In the article, Jacob analyzes the Permanent Portfolio, a theory presented by Harry Browne, to determine whether investing along the theory’s guidelines can help investors beat the stock market.

Investors in general always seem to be on the lookout for a sure-fire strategy that they can use to outperform the market. Unfortunately, the reality is that these strategies are difficult-to-impossible to find. For this reason, I personally invest in a portfolio of passively managed low-cost index mutual funds from various asset classes and rebalance back to my asset allocation targets periodically.

Since my investing strategy does not take up too much time to maintain each month (in fact, individual stock investors might even call it “boring”), I am constantly interested in learning about new investing techniques and analyzing them to see if they have any merit.

One of these techniques/strategies I’ve learned about and analyzed over the past few months is The Permanent Portfolio created by Harry Browne in his book, Fail-Safe Investing: Lifelong Financial Security in 30 Minutes.

What is the Permanent Portfolio?

The goal of The Permanent Portfolio is to provide safety and stability in any economic climate to the money you cannot afford to lose. This is accomplished by selecting various investment components in such a way that at least one asset class is favored in any economic climate. The Portfolio components are as follows, each carrying equal weight for as long as you hold the Portfolio, employing annual re-balancing:

  • 25% in stocks, which do well in times of prosperity.
  • 25% in gold, which does well in times of inflation.
  • 25% in bonds, which increase in price during times of deflation.
  • 25% in cash, which does well in times of tight money/recession.

Existing studies on the Permanent Portfolio

There have been many studies that have looked at this type of investing over the past 5 years. Overall, the conclusions and opinions from these existing studies are mixed. Craig from Crawling Road saw enough evidence from his study of the efficacy of The Permanent Portfolio, and he appears to have adopted it successfully to his investing strategy.

On the other hand, William Bernstein and Geoff Considine feel that while The Permanent Portfolio strategy itself has merit, individual investors who flock to this strategy are most likely “chasing returns” and probably lack the discipline to stick to the allocation dictated over the long-term, causing failure/loss of money to occur. This is due to the fact that the portfolio could be essentially flat-lined while the overall stock market is increasing 20%! An investor must have the discipline to stick to the strategy in these sorts of times.

I was not ready to automatically execute The Permanent Portfolio strategy for my own investing after reading the existing studies above for the following reasons:

  1. The use of raw index prices in existing studies is not ideal. I would want to still see good performance and risk trends when common investment vehicles (ETFs or index funds) are used exclusively to construct the portfolio.
  2. Use of physical gold metal holdings in existing studies is not ideal. Since the studies discussed above used gold market prices, I’d want to perform my own analysis using an index fund or ETF to see how performance held up without the use of physical metal.
  3. Permanent Portfolio performance comparison against a more aggressive stock asset allocation. In the existing studies, the most aggressive asset allocation that was compared against The Permanent Portfolio was a 60% equity, 40% bond asset mix. However, for a younger person such as me who can take on more risk, I would be curious to see how the performance compares to a more aggressive equity asset allocation, such as 75% equity, 25% fixed income.
  4. Use of yearly rebalancing in existing studies is not ideal. I currently employ monthly portfolio analysis (and rebalancing if needed), and as such, I’d be interested to find out how The Permanent Portfolio fairs using monthly rebalancing analysis.

Refined Permanent Portfolio performance analysis

In order to address the four considerations in the previous section, I set about defining the financial instruments that would construct The “Refined” Permanent Portfolio, a hypothetical portfolio consisting of a $10,000 starting value. The components I selected are shown below.

  • 25% in stocks – Vanguard S&P 500 Index Fund (ticker symbol: VFINX).
  • 25% in gold. Vanguard Precious Metals and Mining Fund (ticker symbol: VGPMX).
  • 25% in bonds. Vanguard Long-Term Treasury Fund (ticker symbol: VUSTX).
  • 25% in cash. Vanguard Short-Term Federal Fund (ticker symbol: VSGBX).

The table below summarizes the performance of the Refined Permanent Portfolio described above over the last 20 years (ending the beginning of October 2011) compared to a 100% stock and a 75% stock, 25% bond portfolio. The historical prices data source is Yahoo Finance. Monthly rebalancing is performed to maintain the appropriate asset allocation targets.

Permanent Portfolio Performance Table

Examining the table above, it can be seen that the Refined Permanent Portfolio does indeed outperform both the 100% stock and the stock/bond portfolios by a significant margin, as evidenced by nearly a 60% improvement in return on your original investment (20-year overall ROI), along with exhibiting 30-70% lower risk (lower standard deviation of annual returns).

Essentially, The Permanent Portfolio resulted in overall greater returns because it is insulated against the big decreases in price stemming from the often-volatile stock market. This phenomenon is best illustrated by the graph below, which shows the investment value growth of a $10,000 starting investment in the Refined Permanent Portfolio (blue plot) vs. a 100% stock portfolio (red plot).

The enhanced stability of the Permanent Portfolio was especially apparent in the 1997-2002 time frame (see black square in graph below), when the 100% stock portfolio first increased by more than 100%, only to then decrease nearly 50% in one to two years. The Permanent Portfolio was protected from this huge swing in prices, effectively preserving investor capital.

Permanent Portfolio Graph

Should investors incorporate the Permanent Portfolio?

Because of the consistency of the Permanent Portfolio over the past 50 years in either being competitive with or exceeding the long-term returns obtained using traditional stock/fixed income portfolios, I am convinced that The Permanent Portfolio will continue to perform well over the long-term.

However, I believe that investors should only adopt the strategy in full if the following conditions are true.

  • They will truly stick with it over the 20 years needed to obtain results competitive with or beating stocks, or
  • If they are merely looking for a conservative (not market-beating) strategy to preserve capital and stay ahead of inflation (which coincidentally, is the true goal for The Permanent Portfolio).

However, honestly, I feel that few investors (myself included) will have the resolve to stick with the strategy for the long-term, for the reasons mentioned below.

  • The majority of investors that are interested in The Permanent Portfolio at the current time are simply looking at it as a possible way to “beat the market,” and not as a method to preserve capital, as it is truly intended.
  • The Permanent Portfolio strategy’s returns have a low correlation with the returns of the stock market (a correlation coefficient of 0.58), meaning that if you employ this strategy, you’ll only enjoy any gains happening in the stock market about half the time. (Tthink about completely being excluded from the euphoria of the increase in the stock market in the late 1990′s. Would you be OK with that?) In my opinion, the low correlation of The Permanent Portfolio with the stock market makes it nearly impossible for investors looking to aggressively grow their money to stay with The Permanent Portfolio strategy.

Instead, most investors would be better served by sticking with an investing strategy using and a more “traditional” asset allocation that has a slightly higher correlation with the overall market.

Do you think that the Permanent Portfolio will continue to perform well in the next 20 years? Do you feel you’d have the discipline to stick with the strategy, even if it meant underperforming the rest of the market for long periods of time?

The complete set of calculations of the historical performance of the “Refined” Permanent Portfolio, correlation coefficients matrices, and price history of the proposed index mutual fund Permanent Portfolio is included in this Google Docs Spreadsheet.

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Debt Collections: Do You Have To Pay?

This article was written by in Debt Reduction. 8 comments.

People who borrow money generally understand that they will eventually need to pay borrowed money back to the lender. This understanding, whether codified in a contract or not in any particular case, makes lending and borrowing money work as an economic mechanism. It’s interesting that regardless of what’s written in a contract, most debt can be legally ignored. Borrowers may feel bound by their pride to honor commitments, but every state in the country has laws that prevent lenders from chasing after deadbeat borrowers after a certain amount of time.

Time-barred debts are subject to a statute of limitations. After a certain amount of time passes with a borrower unable or unwilling to pay back a loan, the lender will no longer be able to sue the borrower for uncollected debt. The lender can still contact the borrower and try to convince him or her to pay back the loan, but the lender’s legal rights to the funds are limited.

This doesn’t mean that it’s a good idea to wait for the statute of limitations to pass on all your debt in order to avoid your obligations. There are consequences if you don’t pay back debt. Most importantly, the three credit reporting bureaus will significantly decrease your credit score, and it could take a long time for that number to return to normal. This will affect your ability to qualify for more loans, mortgages, and credit cards in the future.

This is a dilemma many homeowners have considered recently; with the market value of houses sharply decreasing in the last few years, and the resulting financial reality of owing the bank more on the mortgage than the house is worth, some in this situation have considered walking away from the house and mortgage. In some cases, this could be a tactic that is more financially responsible than continuing to sink money every month into a depreciating asset. Families considering this option have to weigh the consequences, including not being able to qualify for a mortgage again for many years, against the emotion-based drive to honor financial commitments.

Although lenders are legally barred from suing borrowers after the statute of limitations for a particular debt has passed, they might still try. If you’re able to show a judge that the debt is time-barred and no longer legally collectible, you have nothing to worry about other than the consequences.

Credit cards and other open accounts like home equity lines of credit, written contracts, oral agreements, and promissory notes may have different statutes of limitations, and each differs by state, as well. Here’s a list by state of time-barred debts.

The clock starts ticking on the statute of limitations from the day you miss your first payment. The moment you send a payment to the lender, no matter how small, the clock resets. For example, if the statute of limitations on credit card debt in your state is seven years, and it’s been six years since you’ve made a payment, you may determine that it makes more financial sense to refuse to make a payment for one more year rather than negotiate with the lender. If you are in financial difficulty and don’t expect to ever be able to pay off the debt, paying even a small amount means you’ll need to wait another seven years after making the small payment before you’ll be legally protected from paying back the debt.

Not all debt is time-barred; student loans backed or issued by the government have no statute of limitations. Anything you borrow under any of the loan programs that qualify in this category can never be ignored. The lenders are often willing to negotiate the terms in order to help you make payments you can afford, but these students loans are, for the most part, legally stuck with borrowers until the lenders are satisfied.

A few questions for discussion:

  • Do you think it’s right that borrowers can avoid agreements by patiently waiting for the statute of limitations to pass?
  • Have you ever been sued for debt you didn’t need to legally pay back?
  • Have you inadvertently restarted the clock by paying a small amount to a lender when it might have been better to wait?
  • Are you dealing with the credit consequences of letting a debt expire?

Note: I am not a lawyer, and nothing written on Consumerism Commentary constitutes legal advice. Always check with an attorney before making any decisions regarding the law.

Photo: Dave Stokes
Federal Trade Commission

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Top Ten Personal Finance Start-Ups

by Flexo

The financial industry has been mostly static for centuries, with companies doing business and offering services not much different from how the companies operated for earlier generations of consumers. When there is innovation in the industry, it generally comes from smaller companies and entrepreneurs looking to fill a need that isn’t covered by larger, less ... Continue reading this article…

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Home Mortgage Interest Deduction

by Flexo
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Although the home mortgage interest deduction is one of the most oft-cited benefits of owning a home, most taxpayers don’t take advantage of it because it requires itemizing taxes. If itemized deductions including mortgage interest paid throughout the year exceed the standard deduction, a taxpayer can take advantage of the benefit. The benefit isn’t as ... Continue reading this article…

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Podcast 138: Gen Y Capital Partners

by Flexo

Today on the Consumerism Commentary Podcast, Tom Dziubek talks to Scott Gerber, co-founder of the startup accelerator and investment company Gen Y Capital Partners. Scott talks about the mission of Gen Y Capital Partners, their relationship with the Young Entrepreneur Council and their recent partnership with the White House on their “Pay as You Earn” ... Continue reading this article…

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New Capital Fund Pays Entrepreneurs’ Student Loans

by Flexo

A new venture capital firm is looking for a few — one hundred in the first five years — entrepreneurs from the recent crop of former students and people their age. Gen Y Capital Partners is looking for investment opportunities — “For Gen Y, by Gen Y” — to help start-up businesses grow. Any entrepreneur ... Continue reading this article…

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