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Podcast 159: The 7% Solution

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Today on the Consumerism Commentary Podcast, Jay Frosting speaks with John Graves, author of The 7% Solution: You Can Afford a Comfortable Retirement.

They discuss the unique challenges baby boomers face when planning for retirement.

Consumerism Commentary Podcast
The 7% Solution: S07E03 / 159

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Table of contents

[00:00] Introduction from Jay Frosting
[00:33] Interview with John Graves
[00:44] The four money lessons baby boomers probably already know
[03:08] 40% of people close to retirement aren’t prepared
[04:19] Make the most of your last years of work and put off Social Security income
[06:12] Look at income sources aside from a typical salary
[07:11] Managing your own portfolio vs. using a financial advisor
[10:34] How to research stocks and be a value investor
[14:21] This system isn’t right for everybody
[15:34] Health is more important than wealth
[17:35] Giving back through volunteer work
[18:17] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

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Art Is Not a Good Investment

This article was written by in Investing. 10 comments.

A few months ago, art and money were connected in the news when Andreas Gursky’s “Rhein II,” a photograph depicting a still river and walkway, became the highest-valued photograph sold at auction. The buyer paid $4 million to walk away with the larger-than-life print. Art is in the news again today, with one of Edvard Munch’s renditions of “The Scream.” At a recent Sotheby’s auction, “The Scream” was sold for $119.9 million. This price set a record, making “The Scream” the most expensive work of art ever sold at auction.

For those who have the money to spare, art is a popular investment. Trading masterpieces of art among a small subsection of the population, less than 1 percent, is not without criticism, however. Many artists do not live to see their works become valuable, and do not benefit from the high prices sought for their work. I addressed both the criticisms and the benefits of giving art a significant societal value in the article about “Rhein II.”

The Scream - Edvard MunchWhile it may be good for society to value art highly, is it a good investment for any one individual who has millions of dollars to spare?

Well, first of all, there is art accessible at all levels of investment. With research, you might find works available for $50 that could certainly increase in value over time at a rate better than what financial advisers offer as typical long-term stock market returns. Art is not an investment solely for the 1 percent. And with the right buying choices, your smaller investment in living artists has a more direct effect on the artist community.

Investing in art isn’t going to be right for everyone. While some consider art to be one of the best investments outside of real estate, the economy has seen would-be real estate investors struggling when the market isn’t robust. The same is true with art. The market is subject to bubbles, the latest trends play a significant role in determining prices, and you may not be able to sell your art at the price time you need the proceeds. Artists whose work have proven to appreciate and are highly recognized as masters, like Dali and Picasso, have price appreciation almost guaranteed, but the barrier to entry for investments in proven artists is too high for investors without the desire to risk large sums of money.

Outside of artists whose works have proven worth, it’s risky to invest in art with the goal of making a killing between the purchase date and the sale date. Even the best research won’t guarantee performance. To mitigate the chance of loss, when choosing art, find something you like. As long as you enjoy looking at your art collection, you won’t mind as much holding onto it until it has the ability to fetch the price you desire — which may be never. At the auction where “The Scream” sold for $119.9 million, one fifth of the pieces on the auction block failed to sell because no investors were willing to pay the asking prices.

Another problem with investing in art is the due diligence required to avoid scammers and fraud-minded people in the industry. Even experts can be wrong about forgeries. Investments in art are not subject to the same kinds of regulation that allows investors to feel generally safe and confident when investing in stocks and mutual funds.

Unless you have the financial ability to invest in artists whose names you know from high school or your college’s Art History course, you might be better off staying away from investing in art if your purpose is finding the next Rembrandt.

Photo: br1dotcom

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Do you reward your children with money for performing well in school? Do you use the promise of an allowance to ancourage appropriate behavior in the family? These are big issues, because they take appropriate behavior and can turn the incentive to financial gain. Children growing up believing that financial gain is the reward for correct social behavior rather than seeing the intrinsic benefit.

The idea that everything has a financial value seems to have become more prevalent over the last two decades, according to a new book. In What Money Can’t Buy: The Moral Limits of Markets by Michael J. Sandel, the author argues that our trend of attributing market thinking to an increasing array of behavior could be detrimental to society.

The book has not yet been released as of the time of writing this article, so I haven’t read it yet. A review in Fortune Magazine is inspiring me to pre-order the book before its release.

The author notes how Americans are now more comfortable with marketing or selling things they might have not in the past. Selling ad space on foreheads, accepting money for branded tattoos, and paying students for each book they read are a few examples of things that might have been unthinkable a few years ago. I would add that the pervasiveness of the Internet has made some of this possible, when it comes to selling ourselves. Through the democratized ability to self-publish, people can easily market themselves without much effort. If you get enough attention, some company also looking for attention would be happy to pay you to do something newsworthy, like slapping a brand on your car for a year.

With the popularity reality television, the idea that anyone can become famous — not just for fifteen minutes but for an entire television season — and wealthy (think: Kardashians) is enticing.

Here are some thoughts from the Fortune Magazine review of the book:

The price we pay for this behavior plays out in several ways, Sandel argues. First off, poorer people are impacted disproportionately by the commercialization of personal space. How many affluent people are lining up to turn their houses or bodies into billboards? In this way, the decision to sell isn’t necessarily as independent and free as it may look. In a society increasingly driven by financial power, moreover, the wealthy hold even better hands than they would otherwise. Why bother encouraging your kid to study hard if you can simply grease his path into Harvard or Yale with the promise of a massive donation?

The more emphasis we place on money in society, the more power society gives to those who have it. I don’t think that today’s plutocratic oligarchy is too much different than western society in most of recent history, however. Those with money have always had the power. We like to think of government in the United States as “of the people, for the people, by the people,” but the Founding Fathers were mostly wealthy and mostly represented the wealthy, though several did their best to be sympathetic to those who were not as fortunate.

It was difficult to leave all old-world philosophies behind; property owners were afforded more rights than those who did not own property. A subtle class distinction still persists between homeowners and renters today.

Political and societal power has always been focused on an elite group of people who have the most money. This is why social change — giving the right to vote to all adults rather than a select few, extending human rights to all citizens rather than a select few, etc. — is only successful through revolution. Those with power and money aren’t much interested in sharing.

At times, market principles put in place to make an altruistic act look even more attractive do just the opposite. Sandel cites the case of a small village in the Swiss mountains called Wolfenschiessen that was once a candidate to house a nuclear waste site. When surveyed by economists, a majority of residents said they’d accept the site as an act of civic duty. The economists then added money to the equation, offering the residents as much as $8,700 each to accept the waste site. At this point, support for the deal plummeted among the villagers. From their perspective, the cash turned a sacrifice for the greater good into a plain old bribe.

Money changes the equation, whether used to encourage someone to do the right thing — who then learns that doing the right thing should always be rewarded the compensation — or to encourage someone to do something that would otherwise give him or her pause.

Fortune Magazine laments that the book does not offer any alternatives for a way of living that does not suffer from over-commercialization. Were wealth not to provide an individual so much power, it couldn’t be used as an effective incentive for changing someone’s behavior. Is there a way for the United States to hold onto the capitalism that’s such an important piece of the success of its individuals and the nation as a whole while taking money out of the power equation?

Also, how far will you go for money? Everyone has his price. Would you sell your body parts? Your kidney for $1,000? Your foot for $100,000? Your arm for $1 million? Would you kill someone for $100,000? For $50 million? For $1 billion? Morals may stand in the way to an extent — but that extent is most likely broken at some level.

Fortune Magazine

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This is a guest article by Gerri Detweiler. Gerri is the host of Talk Credit Radio and serves as Director of Consumer Education for Credit.com. She is the author or co-author of five books, including Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. Her next DIY project is to (finally!) roast coffee beans.

Mark Frauenfelder makes his own yogurt and sauerkraut. roasts coffee beans, and has raised chickens. He’s also tricked out an expresso machine and built his daughter a guitar out of a lunchbox. And he’s managed to complete all of these DIY projects — and many more — while contributing to the very popular blog BoingBoing, and serving as editor of Make Magazine. Oh, and he’s also written a book about his experiences: Made by Hand: Searching for Meaning in a Throw Away World.

My DIY projects, by contrast, are often utter failures. My homemade sauerkraut probably would have given me food poisoning if I had been dumb enough to taste the foul-smelling concoction, and the popcorn popper I bought on eBay to roast coffee beans has been sitting untouched on a shelf for a couple of years now. Oh, and my homemade yogurt tasted like the cheesecloth I used to strain it.

It would be easy to dislike Frauenfelder, except for the fact that he’s a really nice guy. So instead of getting annoyed every time he writes a post about one of his successful projects, I decided to interview him on my radio show, Talk Credit Radio, in the hopes of gleaning some wisdom that could help me become a more successful DIYer. Following are some his best tips (edited and excerpted) from that interview:

Don’t be afraid to make mistakes

Gerri: Tell me a little bit about what you learned from your DIY journey?

Mark: I think the most important thing I learned was that it’s okay to make mistakes, and that you can learn a lot from mistakes. In fact, a lot of research has shown that people learn fast when they do make errors because it really sticks in your mind.

As Editor-in-Chief of Make Magazine which is a technological project magazine, I hung around a lot of people that I call “alpha makers,” people who are just committed to anything and they do a great job of it. I found that it isn’t so much their skill level that’s important but the fact they have gotten over their fear of screwing up. And that is like the most important thing that I learned, otherwise you’re going to be frozen with fear.

I make tons of mistakes all the time but I hopefully learn from them so that every new box guitar I build is a little bit better than the one before. Then you can raise the bar and challenge yourself to try something a little better. It’s a fun way of looking at the world.

You do have time to for DIY projects

Gerri: Mark, let’s talk a little bit about the time factor. You’ve got two daughters, and a full-time job as a writer and editor. How do you fit in these DIY projects? Wouldn’t it be a lot easier to just go and buy a spoon (rather than carve one yourself)? Or go and buy espresso rather than try to figure out how to trick out your espresso machine?

Mark: Absolutely, it would be easier to go out and buy something and time is really precious, especially when you have small kids and you have to work for a living. And that is one of the reasons I wrote this book. I read all those books about going back to the land and making things yourself, they kind of assumed you lived in this ideal world, you have infinite time to do all this stuff.

So I took a much more realistic approach: What if I gave myself 15 minutes a day to get away from the computer and work on a project? And I think almost anybody can give himself 15 minutes a day. But it really adds up and after a month or so, that’s a considerable amount of hours that you’ve been able to devote making things.

There was a guy I was reading about in the 1700’s whose wife was 10 minutes late at the dinner table every minute so he took those 10 minutes to work on a novel and he ended up writing 3 very successful novels that way by squeezing in those 10 minutes. I think that’s the trick is giving yourself that time and scheduling it in.

Gerri: In your book, you talked about how when you were making your wooden spoons, you discovered that you could actually do that while you were on a conference call, for example, and concentrate better. So maybe there is some synergy between being able to accomplish other things whether to clear your mind, or find the relaxation that you need if you take on some of these projects.

Mark: Absolutely and you’ll see that with knitters. People who knit say that they are able to really have a much more pleasant conversation while they are knitting and I found that also that when I do work conference calls, if I just sit and carve a spoon it puts you in kind of a slow state or something and I’m much less fidgety and I can really concentrate one that conversation. It’s a pretty cool effect.

You can do this anywhere

Gerri: You aren’t living on a ranch in Montana or out of the woods somewhere. You’re living in a Los Angeles suburbs, is that right?

Mark: Yeah, I’m about a six-minute drive from Hollywood and Vine. So I’m right here in the city, basically up in the hills.

Gerri: You’re doing these kinds of projects in a very urban environment. Do your neighbors, do people think you’re crazy?

Mark: They’re amused by the chickens. When I had the chickens, they got out and were running around on the street and one of the people who lives on the block, he was one of the producers of The Waltons and he was, “hey this is just like The Waltons!” And he got hold of a cam and started snapping some pictures – he loved it.

It’s not always about saving money

Gerri: Some of these projects may involve specialized tools, or they may involve specialized materials. What have you found in terms of the financial payoff or the financial cost in your DIY projects?

Mark: That’s a really good question. It’s kind of a yes and no thing. No, it’s not going to save you money compared to something that you would buy. If you were to build your own television set it would cost a lot more money to buy the part than it would to buy the TV off the shelf. It’s usually cheaper to buy in almost every case.

But, if you look at making as a hobby that is really rewarding and a way to spend time, it’s going to be less expensive than going out at night and spending a lot of money at a nightclub or taking an expensive vacation or something like that. As leisure activities go, you can make it pretty inexpensive. If you wanted to become a wood carver, you could buy an improvised wood carver set under a $100 and it would give you a lifetime of enjoyment. In the end I think it’s an inexpensive and rewarding way to spend your time.

Gerri: And some projects like some of the food projects you’ve done, you may have an initial investment, like building the chicken coop or getting the yogurt maker if you decide to go the route. But it sounds like that in the long run, they can end up saving you money.

Mark: Yeah, definitely, one thing that I’ve started doing is roasting my own coffee. And there’s a way that you can do it using an air popcorn popper. There are tutorials online that show you how to do it and the cool thing is that green coffee beans, unroasted beans are a lot cheaper than roasted beans. They’re about $5 a pound that’s comparable to, comparable roasted beans would be about $15 a pound. And green beans will stay fresh for about a year or two so you can keep them by yourself, 10 pounds of beans and then roast a batch whenever you need fresh coffee and you will have the freshest coffee ever and you’ll save money.

Gerri: I really appreciate your book and recommend it. I also love your blog at boingboing.net. Can you give us more places that you recommend that anyone who’s interested in DIY should visit?

Mark: Sure, well I think makezine.com has a lot of really good recent resources that will show you how to make different projects, lots of tutorial videos that can help you get started, information about Maker’s Fair, which is our twice annual fair, that has a 100,000 attendees who come to see this giant-like science and creativity fair. It’s really fun.

And another really good website is instructibles.com and that’s where people upload instructions on things that they’ve made, all sorts of gadgets from beer coolers, built-in wagon to really neat kind of kites, all kinds of projects. I think those two right there will keep you busy for at least a couple of weeks.

Listen to or download the complete interview with Frauenfelder here: download

You can also listen to or download an interview with Consumerism Commentary’s Flexo here: download

Editor’s note: I’ve been a fan of Mark Frauenfelder since I discovered BoingBoing many years ago. He was a guest on the Consumerism Commentary Podcast, as well, in 2009.

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The Dangers of Motivating Kids Through an Allowance

by Flexo
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Parents who offer their young children an allowance or pocket money are helping to introduce the concept of money at an age when they are susceptible to ideas they will hold for the remainder of their lives. It’s a good idea to allow kids to gain exposure to to concept and application of income and ... Continue reading this article…

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Barclaycard Ring MasterCard Sets Its Features Through Crowdsourcing

by Flexo
Crowd

Barclaycard, a credit card issuer that primarily furnishes branded credit cards, like the Best Western Credit Card and the Carnival Credit Card, is experimenting with a new business model with a brand new card called Barclaycard Ring. I have to wonder if the “Ring” in the name of the credit card refers to a circus, ... Continue reading this article…

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How to Invest in a Broadway Show

by Flexo
Broadway show

If you’re interested in theater and have money you don’t mind losing, you may consider expanding your horizons by investing in a Broadway or off-Broadway show. Be prepared to lose money, though, because according to a variety of producers, only one show in five breaks even. When a play or musical is in the planning ... Continue reading this article…

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Do Retailers Know Too Much About Shoppers?

by Flexo
Target

It’s no surprise that retailers track your purchases. It’s obvious at the grocery store, particularly if you sign up for the supermarket’s loyalty discount program. If you provide your address, you’ll receive coupons and ads tailored specifically to your buying habits. My local supermarket allows customers to sign up anonymously; the coupons are offered right ... Continue reading this article…

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