Request Financial Risk Tolerance Assessment Software from Your Advisor

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[The following is a guest post by Mark Friedenthal, the founder and CEO of Tolerisk®. Tolerisk is a risk tolerance assessment tool that is created for financial advisors and those in the wealth management industry. Prior to launching Tolerisk®, Friedenthal started Friedenthal Financial, where he worked as an investment advisor for private clients.

I think financial risk tolerance is a very big deal that doesn't get a lot of attention in the personal finance space. Having witnessed the dot-com bust in 2000 and the subprime bust in 2008, I know that they can be painful for those who aren't prepared. We've gotten close to another 8 years without a big collapse. Maybe the next one is around the corner.]

Whether you invest a significant amount in the markets, or you're simply trying to grow a nice retirement savings account, you will want to work with a financial advisor who can provide expert insight and guidance. That being said, it is essential that you and your advisor agree to the amount of risk that is right for you, as you manage your investments.

Don't feel like you have to attempt to figure out your risk tolerance level on your own. Instead, request that your financial advisor use advanced risk tolerance assessment software, such as Tolerisk®, in order to create the right plan of action for your specific situation.

Top Reasons Why Clients Request Tolerisk® Financial Risk Tolerance Assessment Software

  1. They want to know the right level of risk to be taking — and how it will likely evolve over time. Risk tolerance questionnaires are not new. Most financial advisors have been using these questionnaires with their clients for years, but most of these questionnaires lack a scientific approach. The majority of these questionnaires provide clients with a vague ‘moderate’ risk level. This leaves lots of room for interpretation by Advisors and clients alike. With good risk tolerance assessment software, scientific calculations are used to provide advisors with personalized results for each individual client. Ultimately, the assessment results provide clear guidance as to the next steps that should be taken with your particular portfolio risk.
  2. They want to understand how differing decisions (how long they work, how much they save, or how well they live) will impact risk level and how long their money will last. Your basic risk tolerance questionnaire is going to ask you a lot of questions about your personality. While this is one thing to consider when determining your risk level, there are also several other important factors that must be incorporated into your decisions. Request that your financial advisor use good risk tolerance assessment software that evaluates both your willingness and ability to take risk. There is a non-linear relationship between these two factors that must be analyzed in order to deliver expert results.

Ultimately, by working with a financial advisor who utilizes good risk tolerance assessment software, you can receive the expert care and guidance that you need as you maneuver through the financial markets. Tolerisk® is risk tolerance assessment software that takes into consideration both your willingness and ability to take risk. After the assessment is complete, your advisor will review a report that incorporates all of your unique information and produces very personalized results. This report, which is easy to read and interpret, can be used as a valuable resource when it comes to managing your investments and your expectations.

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Posted on November 6, 2016.

Can We Rely on the 4% “Rule?”

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For at least a decade, financial gurus have relied on the 4% rule. It has been considered a safe rate to withdraw from your retirement nest egg so you won't run out of money in retirement.

For example, if you have a million dollars in that nest egg, you can withdraw $40,000 (4%) a year.

Sounds great right?

Let's get into the weeds.

That link above explains that it was 5% before the 1990s. Recent research shows that the number might be closer to 3.5%. So should you withdraw $35,000, $40,000 or $50,000? That's kind of big difference right?

You might ask, "Where do these numbers even come from?" I always presumed (and still do) that it's an assumed rate of return, such as 7%, minus inflation, typically around 3%. Before 1990 you would have been able to get a higher rate of return in interest from banks. Today, you get almost nothing.

The question I have is, "How long should that nest egg last at whatever the 'correct' rate is?"

I read this article on CNBC that says it should last 30 years. That's a good thing. We typically think of retirement starting at 65. Being financially covered until age 95 is great. I don't know too many who think, "What am I going to do at 96?"

However, let's think about where that 30 years comes from. If we had a mattress made out out of million dollars (it's too much to stuff under), it would last for 25 years by simply drawing down 4%. If we went with the rule of 3.5% we'd get by 28.5 years... guaranteed.

That's earning 0% interest... for 25 to 28.5 years. It feels like we should be able to do better than that, right?

We could invest in some dividend stocks via Motif or put some money in Lending Club which has returned around 7-8% for me over close to a decade now. We could buy some bonds or some REITs.

We could do all the above and probably come up with some combination that would yield a positive return over 25-28 years, right? If not, this whole investing thing seems to be a scam.

So what happens if you were to retire at age 35 or 40 and have to fund 45 or 50 years of retirement?

How long should we be able to last by withdrawing an amount of 3.5-4%? Mathematically it would last indefinitely if you are able to invest the remaining portion at the same 4%. In practice, you'll probably have some money earning 0% in a bank account. That would most likely be balanced by having some money earning the 7-8% long-term rate in the stock market.

A Bloomberg article featuring of two of my favorite financial independence gurus tackles this question.

It begins with the assumption that the 4% rule doesn't apply to those retiring early. The author brings in an expert opinion:

“If you retire at 40 with a couple million dollars, you’re going to worry—about financial emergencies, taxes, inflation, market crashes, and the chance you’ll live a lot longer than you’d planned for,” says Robert Karn, an adviser with Karn Couzens & Associates in Farmington, Conn.

Inflation is a legitimate concern. A market crash could be a legitimate concern, but someone retiring at age 40 with 2 million dollars probably is smart enough to take a long-term view. I'm not sure if taxes are a legitimate concern, because they aren't exactly a surprise. Taxes tend to be fairly consistent. The biggest tax is income tax, and when you are retired, you typically don't have a lot of income.

As for the chance you'll live longer than you planned for, 2 million dollars is enough to last for 50 years (until a person reaches 90) if someone withdraws $40,000 a year. That's if the money made zero interest during that time.

The Bloomberg article does a great job profiling 3 people who illustrate how early retirement works in practice. These people are very intelligent and very diligent with their money. They aren't the average Joe.

I think it's time we look at the 4% rule in more detail. It seems like the 4 number itself depends greatly on the person's expected spending and asset allocation. It's a nice easy estimate, but I don't think people should make absolute statements without knowing those details.

What do you think? Let me know in the comments.

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Posted on October 31, 2016.

Is it Time to Buy Chipotle?

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Nearly two months ago, my new BFF made a big bet on Chipotle buying nearly 10% of its stock. Yes, that was my billionaire BFF Bill Ackman.

Unfortunately, Billy didn't give me a courtesy call beforehand. (Naturally, as such a call might violate every security law. Also, Bill Ackman isn't really my BFF... just in case you didn't the joke.)

Ackman making such a large investment in Chiptole was an extremely positive sign. The stock jumped up around 7% on the news, if I'm reading the charts correctly. By the end of the day, it was trading at nearly $440.

Flash forward to yesterday...

By the end of trading, Chipotle was at $368 and change, losing more than 9% after announcing earnings. You can buy Chipotle now even cheaper than the "smart money." That always gets my attention.

Chipotle is cheaper for a reason. It didn't just drop in half from $750 to $375 for nothing. Unless you've been hiding under a rock, you've heard about the health issues. It scared customers away. Revenues are down. Chipotle had to resort to giving away free food.

The big drop in stock price due to people staying away... at least more than what analysts thought. Comparable sales dropped 22% from the previous quarter and they were predicted to drop only 18%.

I love when a stock is beat up. I view it as being on sale, "Buy Chipotle, now 50% off!" I also view it as waving a flag, "hey, it can't get any worse."

I also believe that the best time to visit a restaurant is after a health scare. It's a combination of "they'll be extremely focused on preventing that from happening again" and "lightning doesn't strike twice in the same place." (Although with Chipotle, I think it did strike twice.) The health scare problems seem to be well behind it now. The storm has ended and it feels like it's time for the clouds to pass and the sun to come out.

On the other side, even after the big drop in price, Chipotle has a P/E of ~55. Compare that to McDonalds which has a P/E of 21 after performing well in the last 15 months or so. Shouldn't McDonalds be trading at a premium P/E and Chipotle trading at the discounted P/E? A 55 P/E is high for a company that is performing well. I'm shocked to see that valuation on Chipotle given its problems. It feels like paying a premium for a car that has some parts falling off it. Even if you think you can repair it cheaply, why pay the premium?

I'm tempted to make the move and buy some Chipotle, but I think I'm going to pass for now. I simply can't balance the following factors in my head: better than "smart money" sale, recovery from health scare, still trading at a high P/E. If I want to gamble, I'll get a casino app for my tablet. It'll probably be a lot more fun. At least I'd know I'd be playing with a known set of rules.

As for investing, I'll be sticking to boring stocks like IBM. It continues to have a great price/earnings ratio, a very good dividend, and a strong stock buyback program. From a public relations perspective, making headlines for the right reasons with Watson is the opposite end of the spectrum than why Chipotle has been in the news.

I'll still keep Chipotle on my watch list though. As it the "retailer" (stock market) makes it cheaper and cheaper, it's getting more and more tempting for me.

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Posted on October 27, 2016.

Starting A Stock Portfolio? There Are Apps For That

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The following guest post on investing methods was written by Jim Cooper. Jim is a part-time freelance blogger who covers lifestyle, finance, and similar topics.

"Step 1: Open a brokerage account if you have several thousand dollars."

This is the first line I saw when, some time ago, I somewhat-embarrassingly started googling things like "How do I open a stock portfolio?" Literally speaking, it's a pretty logical first line in describing the process. But where I was concerned, it was immediately overwhelming. Full disclosure: I wasn't sure what opening a brokerage account entailed, and I wasn't sure if I wanted to commit "several thousand dollars" when I was really just looking to get my feet wet.

Let me back up a little bit. I think for the average young person, investing can seem pretty complicated. Not so for this lucky writer. I grew up in a household in which it seemed about as simple as could be. My mother was, for much of my life, a day trader who would sit in her home office listening to people yelling at her on CNBC and glancing at a few different computer monitors making snap buy or sell decisions. To me, it looked pretty straightforward: buy low, sell high, look for recognizable patterns in charts, and hope that the little number showing the change in the overall account for the day is green instead of red.

As it turns out, the average young person's understanding is far more accurate than my warped and simplified one. Sure, the trading process is more or less what I saw it to be once you're up and rolling with everything set up. But the part I never really witnessed (or, frankly, thought about) before I started to look into setting up my own portfolio was the logistical side of things. You have to choose a brokerage, set up your trading software, pay fees for transactions, and go about managing all kinds of other not-so-fun details as you go.

Perhaps it was silly of me to only see what was on the surface for all those years watching my mother, but then think about it with regard to other professions. If your parent is a lawyer, do you see the meetings and stacks of paperwork, or do you wonder how he or she went about obtaining PLLC status and renting out office space? If your parent is a teacher, do you envision the actual teaching and grading, or do you picture in-depth lesson planning and meetings with faculty and administrative people to outline a year's worth of education? I digress. But my point is these things can look a little simpler when you're close to them but not actually in them yourself.

The point is, I wasn't quite prepared for the involved process of setting up a trading portfolio through an online broker, even if it's something that millions of people learn how to deal with. And it turns out I'm not the only one. Having done a little bit more research on the topic, I've learned that a lot of so-called "millennials" (yes, I'm one of them) are weary of traditional investments.

What I also discovered is that my fellow millennials have gravitated toward alternatives more suitable to our general preferences as a generation. In a post specifically about how young people are approaching forex, it was mentioned that the availability of financial resources has surged as a result of companies developing new tech-based platforms to appeal to new audiences. In other words, financial apps are getting more popular because they speak the millennial language.


The first app I came across was Acorns, a clever tool that invites its users to experience "micro-investing." To be perfectly frank, it was the image and interface of the app that drew me in first. Like Monument Valley in gaming, Acorns stood out as a particularly beautiful app that I'd actually enjoy using. Make no mistake, in the age of instant gratification, you can judge a book by its cover; something that looks nice has a better shot at grabbing a young person's attention, and Acorns looks terrific.

As for what it actually does, it's kind of like a digital piggy bank that knows how to invest. This app links up to your cards to take small amounts of money (rounding up to the nearest dollar when you make a payment) and then place them into a portfolio that's already been compiled and is managed by professionals. You can choose from a few different portfolios by risk level and then simply watch your account generate income from your spare change. It's not going to double your bank account or anything, but it's completely effortless.

Two other apps that also popped up in my searches were Stash and Robinhood, which do largely the same thing. Basically, these are more hands-on mobile investing tools that actually challenge you to make your own buy and sell decisions. The fun part is that they don't charge fees for transactions and they're just a whole lot simpler than going the online broker route. Like Acorns, both are very attractive in a minimalist way, and both are simple to use. Robinhood and Stash offer real and active investing in addition to various tips and tools that can help you to analyze your own performance and learn on the go. So far I'm going with Robinhood, but it's only because I like the look of it a tiny bit more. Both apps have generated some really positive attention and strong reviews.

Overall, I'd file apps like these under the category of "life hacks" for anyone else, like me, who looks at traditional stock trading and sees something far more complex than it needs to be.

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Posted on September 13, 2016.

My Best Investment Idea Ever: Short Herbalife ($HLF) Stock

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I didn't plan to write this article today. I had hoped to write about EpiPens as I mentioned a couple of days ago. Unfortunately, once again, life intervened, so I'm pivoting to an article that is easier to write.

I ask that you please bear with me. I'm a little surly after spending yesterday responding to RainSoft's legal discovery of my Yelp-like review here. It's like this awesome true video:

... except imagine that everyone involved is from the 1800s and doesn't know anything about photocopiers. That was my day... in my opinion*.

(By the way, if anyone wants to help me protect consumers please see this link.)

Sorry for the long introduction... let's get back to the topic...

The best investment idea I've had in years, perhaps the in the entirety of this blog, is to short Herbalife ($HLF) stock... or perhaps buy puts on the stock.

Some will consider that a bold statement and it requires a bit of an explanation.

First, what is shorting a stock? I'll let Wikipedia provide a better explanation than I could. What is buying "buying puts" on a stock? Again, I'll defer to Wikipedia on the subject.

Essentially those two ideas are about making money by expecting the value of a stock going down.

In ten years of writing Lazy Man and Money, I never seriously considered betting a stock will go down. In full disclosure, I don't even know if I have an account that allows me to do so (I think it may require a margin account). That should make it obvious, but I don't have a position in Herbalife or a negative position in any other company. I might (and probably will) explore shorting Herbalife and/or other MLM companies in the future. The scale is likely to be weeks or months in the future, because, well, as I mentioned at the outset of this article, I'm fairly busy.

(I'm going to extremes on disclosures because of lawyers, such as Vorys, Sater, Seymour and Pease :: Attorneys-at-Scam... which is not my title or my article).

The Short Case for Shorting Herbalife

I haven't done a "deep dive" into Herbalife like some other MLM companies, but I have written: Pyramid Scheme Questions Cause Herbalife to Lose 3 Billion Dollars, This Herbalife Story is Amazing, and Herbalife Settlement: Quick Reactionary Thoughts.

My opinion is that Facts About Herbalife has shown numerous cases of fraud. I believe that the FTC settlement with Herbalife agrees as they write:

"This settlement will require Herbalife to fundamentally restructure its business... Herbalife is going to have to start operating legitimately, making only truthful claims... and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices."

Some will ask why the FTC would "settle" with Herbalife given that statement that essentially calls them out for fraud. As a long-time FTC insider explains the FTC needs to sue pyramid schemes which take years and millions of tax-payer dollars. Perhaps the LA Times didn't understand that, because they've asked why Herbalife is even allowed to conduct business. Perhaps the LA Times' writer did understand it but he wanted to emphasize the absurdity of the situation.

I believe that Wall Street has its head in the sand.

This is the second time that the FTC mandated an MLM company to make changes to "operate legitimately." The last time was Vemma about a year ago. What happened? You should read this Truth In Advertising retrospective on Vemma where the company has lost millions. The CEO has thanked people for continuing to buy its products because, in his words, "you have no idea how badly I needed your help and need, still need your help today."

My understanding is that Herbalife will be forced to make similar changes that Vemma had to make. I believe that starts in May 2017. I don't think Wall Street understands what has happened to Vemma... perhaps because Vemma isn't a publicly traded company.

I think that the FTC settlement will essentially suffocate Herbalife like it did with Vemma. I think the FTC moved towards this settlement because it is a lot of quicker and easier then spending a decade in court debating on what a pyramid scheme is. I think Herbalife agreed to it, because they weren't in a position to argue for anything better. This way they can at least buy some time.

In my opinion it is EXTREMELY notable that Herbalife didn't just say, "We'll put our products in stores and avoid this MLM/pyramid scheme mess." I can't imagine a legitimate company with legitimate products at fair pricing points, not embracing that. It seem to be common sense and I think a 5th grader could grasp the concept. However, if I were a company operating a pyramid scheme, I would probably fight tooth and nail to remain that way and avoid putting my products in a competitive free market situation. It seems that Herbalife is embracing that second path.

I don't see how this is going to end well for Herbalife. I think investors can take advantage of that.

* I've decided to include the words "in my opinion" in my articles involving scams or lawsuits in the future. (If I forget to include these specific words readers, agree to acknowledge this disclaimer.) I thought that this was understood, as this entire blog is about my opinion on things. It seems that lawyers like to argue otherwise. While in disclosure mode, I should upgrade my previous mention of "a little surly" to "very surly." Fair?

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Posted on August 31, 2016.

Rhode Island’s New CollegeBound Saver is Great!

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Editor's Note: While I usually try to write for a national audience, today's topic is more fitting for residents of my state, Rhode Island. However if you stick around until the end, you might have a chance at some free money.

It's good to be back to work after a week's vacation. We just got back from a trip that was very similar to last year's when we traveled from Rhode Island to kids' parks in New Jersey and Pennsylvania. Last year the stops included: Sesame Place, Hershey Park, Please Touch Museum, and the Crayola Experience.

This year we kept Hershey and Please Touch on the itinerary. We substituted out Sesame Place and Crayola for Diggerland and Knoebel's Theme Park. This article isn't about my vacation, but I do want to mention a couple of quick things. We should have waited until our boys were 5-7 for Diggerland as they weren't tall enough to do much. Knoebel's was much better than I anticipated, but we got a really hot day and it was last on the trip, so we couldn't really give it the fair shake it deserved.

When we got home yesterday, I noticed that the mail contained the new program description of CollegeBound Saver, Rhode Island's 529 plan. Rhode Island decided to change the management group of the 529 plan from CollegeBound Fund by AllianceBernstein to the new "Saver" by Ascensus. We were finally getting details about what the new program was about.

I knew much of the program wouldn't change. There are laws in place that govern the general details of the state's 529 plan. My biggest concern was that we'd have to leave the sweet, sweet, low expenses of the Vanguard funds at AllianceBernstein.

I'm a skeptic by nature and figured that because we were being thrust into this new system with no vote that it wouldn't be good.

I was wrong.

I found the CollegeBound Saver program description a little confusing. I think it was because it was designed to introduce people who are new to 529 plans and saving for college in general. The book is 80 pages long with some information about unrelated programs like Coverdells.

The "meat" of what I was interested in was the investing options. The new CollegeBound Saver program has three core "goals" which are each broken down into smaller investing options. There are target date portfolios, target risk portfolios, and individual portfolios. I can target 2030, an aggressive mix, or just choose the funds that I want.

I like to choose my funds, so that's the option I focused on. The CollgeBound Saver individual portfolios have names like "U.S. Stock Portfolio" and "Bond Portfolio." These are mapped to underlying funds such as Vanguard's Total Stock Market Index Fund and Vanguard's Total Bond Market Index.

It took a little digging, but I finally found what I was looking for. My assets were moved from my previous Vanguard Total Stock Index funds to the new Vanguard Total Market Index. I'm investing in the same thing!

The big change is that the expenses are estimated to be 0.04% which is the lowest I recall seeing outside of my wife's Thrift Savings Plan. The book includes a chart of hypothetical $10,000 investment cost chart. The easy math shows that I'll be spending a whopping $4 a year in management costs a year. In 10 years, it will be $51 total. The other investment options are also very low for the most part.

Years of reading personal finance magazine have drilled the following in my head: Control expenses, because you can't control the market and expenses add up over time. The new 529 plan has two funds with expenses over 0.16%: a 0.37% stable value option and a 0.61% Invesco Global Sustainable Equity option. As long as investors steer clear of those, the expenses mean almost nothing over the 15 years (give or take) that the money is going to be invested.

Now for that chance at free money. Later on this week, I'm going to be sending out my VIP email newsletter. It's free to join (of course). You can join it here. Readers of the newsletter will have a chance to win $25 (payable in Paypal or Amazon gift card, I haven't decided yet). I know it isn't life-changing money, but I will easy for even the laziest of people.

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Posted on July 25, 2016.

My Ideas for “The Big Short: Part 2”

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Last night, I finally got around to watching The Big Short. I had rented it on Amazon for a $1, but it sat around. Yesterday I got an email from Jim Wang of Wallet Hacks that he had just watched it on Netflix. He wrote the following:

"When it came out in 2015, I'm sure a lot of people got angry at bankers for living high on the hog, nearly imploding the economy, still getting paid off, but no one going to jail. I understand that's upsetting but being upset doesn't accomplish anything and certainly doesn't help you or me. What can? Learning something from it.

... The second takeaway is to challenge assumptions. Moody's and Standard and Poor's rated these financial instruments as triple-A, top notch, but they weren't. People assumed the instruments were safe because of the agencies...

All of this has all happened before and it will happen again."

[If you haven't seen the movie, this article might contain some minor spoilers. However, they'll be a little like the movie Titanic, right? We have an idea of what happened in these historical pieces (if we're interested in the events).]

We all view things through our own lens, right? I think my lens might be a little unique. It's unique enough that I'm going to make a pitch for a sequel. Because as far as I can tell (to paraphrase Jim), "all of this has been happening for decades." (Later, I support this with a quote from Dr. William Keep, a recognized expert in the industry.)

Hopefully someone out can put me in touch with Michael Lewis or Adam McKay who can take my proverbial straw and spin it into gold.

The best part of the sequel I'm proposing... is that you don't have to change much. It's like The Hangover sequels... they work well... so just leave them alone.

We can even begin it with the same quote: "It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so."

The Big Short Part 2: Attack of the MLM/Pyramid Schemes

Yep, this article is about MLM. These are the kinds of things that you see crowding your Facebook. These are the things that typically collapse in about 5-8 years... or even faster. Over the years you've probably seen MonaVie, ViSalus, and Vemma. There's a bunch of smaller ones that you were most likely fortunate enough to ever encounter (Xowii and One24).

Fortunately, we can keep the same title and even the same Wall Street angle. Vanity Fair described The Big Short War. Here's a little snippet:

"[Bill] Ackman has called Herbalife a 'fraud,' 'a pyramid scheme,' and a 'modern-day version of a Ponzi scheme' that should be put out of business by federal regulators."

[The rest of the paragraph is great, but I didn't feel it was fair or fitting with the point to quote it all here.]

Yes, Bill Ackman has put a billion of his dollars (similar to some of the characters in the real movie) that there's something wrong here. The difference is that Ackman sees and documents the fraud he finds on Facts About Herbalife.

Celebrity Cameos to Explain MLM

The Big Short has a great gimmick of bringing celebrity cameos to explain complex financial topics. Anthony Bourdain, Selena Gomez, and Margot Robbie each come in for about 2 minutes.

In my movie, I'd get golfer Dustin Johnson and his fiancée Paulina Gretzky to explain it. This is a perfect fit, because I'll use a golf analogy to explain how I view MLM. It will go a little something like this:

[Dustin speaking]"Let's say that success in MLM is getting this golf ball in the hole. The first people joining get to take very short puts. So short that anyone, even Paulina, can make it. [Cut to her nailing an easy put.] However, it quickly gets exponentially more difficult since everyone is trying to recruit everyone else... and everyone interested would already be a part. So instead of a short putt, for more than 99% of the people, it's like trying to get a hole-in-one at TPC at Sawgrass's Island Green... during a hurricane. [Cut to show how difficult the hole is.]

The MLM recruiters like to show off Paulina's success as if it is representative of what will happen if someone 'plugs into the plan.' After all, if they explained that more than 99% of people are doomed to fail, they couldn't recruit anyone. They like to say things like, 'In MLM the only variable is you.' This is a way to make you feel like a failure if you quit and deflect blame from the scheme.

People typically lose money by overpaying for what they think is a legit business opportunity. You can buy a golf ball for 50 cents, but if you want to have success, you have to buy specific golf balls for $5.00 a piece. The MLMers will tell you they are much better golf balls, but typically only the people playing the game believe them, since they don't a good job at showing why they are better.

Month after month, people tend to hit dozens of golf balls into the water. Even with all the practice I've had over the years, I'm not likely to get a hole-in-one to succeed. Paulina's odds at the short putt are much higher than having years of practice and my circumstances.

Just like in the original The Big Short, the reality is more complicated with nuances, but I think this conveys a fair introduction.

Where is Law Enforcement?

We might be able to recycle part of this admission from an actress playing an SEC executive in the original movie:

"Oh we don’t investigate mortgage bonds. Truth is since we had our budget cut we don’t investigate much."

See this Bloomberg article: "An Insider Explains Why the FTC Can't Put an End to Pyramid Schemes"

It's a similar story with it costing years of the FTC's time and money to go after a single one. It's hard to put too much blame on the FTC, as they really need a Federal pyramid scheme rule according to the FTC insider. Let's just say that I haven't met too many people who have faith in politics lately.

The FTC does have some guidelines for consumers
about MLMs/pyramid schemes
, but the average person isn't likely to stumble across the article.

Imagine if law enforcement didn't go after murderers and instead gave you tips on how to avoid being murdered. Now imagine they took it a step further an implied that murder might be legit. That's how I feel.

And if that sounds crazy, please read Dr. William Keep's article on MLM here. He's just the Dean of Business at the College of New Jersey, and one of the foremost experts on MLM/pyramid schemes. I'd love to quote the whole thing, but I'll just stick to this:

"Business fraud undermines markets and misallocates financial resources. Managing it can be difficult. In the guise of MLM companies, pyramid schemes are the perfect fraud storm that has swirled around U.S. consumers for decades, transferring small amounts of wealth from hundreds of thousands of victims using face-to-face deceptive marketing. As a result, a small number of perpetrators reap large rewards."

Where Do I Stand on All This

I found myself identifying with almost all the characters in The Big Short. However, I particularly found myself identifying with Mark Baum played by Steve Carell. Almost everything he says is quotable, but there are a couple that caught my attention, and we can recycle them for the sequel:

" You have no idea the kind of crap people are pulling, and everyone's walking around like they're in a damn Enya video. They're all getting screwed, you know? You know what they care about? They care about the ball game, or they care about what actress just went into rehab."


"We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball... What bothers me isn't that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and short sighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did."


The above is my opinion which I believe is protected under the First Amendment. As Homeland Security has trademarked, "If you see something, say something." I see something, so I'm saying it, which has thus far lead to four serious legal attacks (including three lawsuits) upon my free speech to express these views.

I leave you with two motto's:

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Posted on July 14, 2016.

I Just Made a Ridiculous Investment… Here’s Why

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I made a mistake in the title. Investment is the wrong word... gamble is better.

Bad gamble might be the best phrase.

To make matters worse, I invested money that wasn't mine.

I invested in an ETF focused on Greece (symbol: GREK).

Let me start off by explaining how bad this investment is.

Here's what Benzinga said about it a few days ago:

"Greece ETF Needs A Shot Of Confidence... There are problems aplenty for Greek banks, too, and that is problematic for GREK because the ETF allocates nearly 39 percent of its weight to bank stocks... The ratings agency's standalone viability rating on Greek banks is 'F.'... "

On the surface, it looks terrible. It reminds me of the time I put leftover Chinese food in the rice cooker (with rice) and my wife thought I had lost it by adding poop. If you take the time to understand, something that seems terrible can actually be delicious.

I may not be able to spin straw into gold, but I'm going to try to make this poop into delicious food.

The key to my success is the investment account. In this case it is (Disclaimer: I have received no money from or on behalf of Robinhood for this article.)

Robinhood is a brokerage that has no fee trading. Typically you may pay $8-12 for making a trade, such as buying or selling a stock. If you are using your money to invest a good-size chunk of money at once it's not a big deal. You want to be careful not to trade too often as those trading fees can add up.

With Robinhood, that's not a problem. Nonetheless, I intend to buy and hold for a long time.

You should now be saying, "But that poop isn't even close to dinner! And other people's money?!?!"

The money I invested was for my 2 and 3 year old. They don't any better. What? That doesn't make it any better?

Fair enough. I invested more than 95% of their money in Vanguard Total Stock Index (NYSE: VTI). That's a well-diversified investment that many readers will recognize as a core holding.

Why didn't I invest 100% of the money in VTI? I couldn't buy a fractional share.

I had less than a hundred dollars in uninvested money. With no trading fees, I can put what would have been idle cash to work. Unfortunately, it wasn't even enough to buy a share of Apple stock. I could have bought shares of another stock, but I liked the idea of gambling on GREK trading at $7.

In 2014, GREK traded around $24. I've been watching it for some time, simply because there are so many problems with it. I have a philosophy that a country is not likely to disappear. I believe that, given a long enough timeline, a strong beaten-down country will recover. I have several Greek friends and they are the strongest people I know.

At ages 2 and 3, my kids have the benefit of time. I'm thinking this money will help them buy a first car in 10-12 years. It can sit for even longer if necessary.

More importantly the investment is less than a hundred dollars. You can blow that kind of money on a round of drinks in New York City... and have nothing to show for it.

I'd rather accumulate shares of something that has a likelihood of appreciating, right?

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Posted on July 11, 2016.

Giving SodaStream Another Look

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I apologize for the lack of articles lately. I've been deluged with legal documents and requirements related to some of the companies mentioned in my GofundMe: Consumer Advocate Sued Into Silence posting.

That kept me busy up until a short family vacation where we went to the smallest city in the smallest state. They really have that book for everything, right?

Today's topic is SodaStream, a product, company, stock, and savings tool, that I've written about a lot in the past.

For example:

The last one is particularly interesting because I wrote about how I considered Facebook a bargain at $20, but not at $57. As I publish this, the stock is almost exactly twice that $57 number trading at $114. What a difference a couple of years makes!

While I was convinced I had picked a winning product on the upswing, it turns out I was wrong. The stock continued to tank even after it had dropped significantly. This is often called "catching a falling knife" in investing circles.

This is why, last week, I wrote that you shouldn't necessarily invest in what you know. Typically we know products and we may even love them, but companies and their execution can be mysteries. In extreme cases you may find yourself investing in the next Enron disaster where few people really knew what was going on.

This is all in the past. I sold most of my SodaStream stock when it had a brief bump on an acquisition rumor. I kept a very small amount simply because I still believe concept of making sparkling water at home for pennies.

That brings us to last week, where I read an interesting article on LaCroix sparkling water on Vox. It seems like this is the newest fad. The strange thing is that the flavored sparkling water has been around 30 years.

Why is it so popular? As the article says:

"Over the past decade, Americans have done something that would have once seemed downright un-American: They've given up soda. And when you’re craving a can of pop, LaCroix is a decent substitute. Unlike tap water, it has carbonation and a little flavor... Close your eyes, wrap your hand around the perspiring aluminum can, and you could be holding a Coca-Cola. LaCroix is succeeding as methadone for the soda addict."

In other words it's the right product at the right time. However, there's more to it:

"The secret behind LaCroix’s rise is a mix of old-fashioned business strategy and cutting-edge social marketing. When Americans wanted carbonated water, LaCroix was positioned to give them them fizzy water. Then, sometimes by accident, LaCroix developed fans among mommy bloggers, Paleo eaters, and Los Angeles writers who together pushed LaCroix into the zeitgeist."

It also has great marketing. It's easy to see why the right product at the right time with great marketing would be a winner. And I thought I had that with SodaStream.

I cut out one sentence in the first quote:

"Unlike a countertop SodaStream, it's cheap, readily available, and portable."

I'd argue that SodaStream is cheaper... especially if you use your carbonation as I do. I'd also say that it's just as portable... you can bring 500ml or full liters with you easily. I'd argue that it's readily available (it's at home and portable), but I could concede that point.

While SodaStream doesn't produced flavored carbonated water directly, it's easy to add a True Lemon, True Orange or True Grapefruit packet... or maybe a dash of cranberry juice for flavoring.

A strange thing has been going on with SodaStream's stock the last few months. You could have bought in at around $12 a share, but today it trades at more than $21. They had a great quarter that surpassed expectations. I don't know if they can continue to execute or not, but right now it looks like it's bubbling up nicely (terrible pun intended).

This experience has made me wonder if timing really is everything. Is it possible that I was just too early? Or is it that SodaStream had bad execution and is just now getting it figured out?

If anyone has answers or thoughts, I'm all ears. Hit me up the comments.

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Investing, Spending

Posted on June 29, 2016.

Thoughts on the Best Ways to Invest $1000

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Nearly a couple of years ago I asked the readers, what's the best place to invest around $1000?.

Earlier this week, Jim Wang asked 24 experts and a wannabe (myself) about the best ways for newbie to invest $1000. I figured he'd get the same two answers from everyone:

1. Vanguard Mutual Funds or ETFs
2. or a Robo-Advisor

And of course those were the two things I mentioned. (I may have cheated by giving two ideas.)

In fact a number of people echoed those thoughts. Since I expected those two, I'll give you some thoughts on the other ideas mentioned. Those ideas were largely thinking outside the box. Everyone has their opinion and that's what makes us (and life) exciting. So here are my thoughts on a few of the suggestions (for what it's worth):

  • Spend the money by Marginal Revolution - Simply because rates on investments are low right now. It's an interesting thought as much of the year the markets have been flat and interest rates are very low.
  • Pay down debt by The White Coat Investor - Love this, but I'd say pay down bad debt. There's a difference between Good Debt and Bad Debt
  • What's your goal by Investor Junkie - This was probably the best of the non-standard advice I had read.
  • Invest in yourself by Nerd’s Eye View financial planning blog - I've never been a fan of Invest in Yourself, because there are a lot of investments that give you no return and suck up your time and energy. It's really hard to know which are good investments... and if you did, you'd probably have already invested in them, right?
  • Invest in what you know by John Paul Engel - Not a huge fan of Peter Lynch's buy what you know as I mentioned before. I knew that everyone would carry internet phones in their pockets back in 2004 and bought Palm stock. How do you think that worked out for me? I'll cover another company that went similarly bad for me in a few days. There's a big difference between the idea and the execution of the company. It can be almost impossible to know how a particular company is going to execute, right Enron investors?
  • Save it in an Emergency Fund by Cashville Skyline - I kind of thought this went without saying, but when you assume that, you can get in trouble. Good idea on Kate for saying it.
  • Depends on the person by Three Nine Financial - This is almost like me cheating and offering a couple different options. Yes it does indeed depend.
  • Don't be emotional by Hylland Capital - Once again, this is a great suggestion and the kind of thing that I simply would have glossed over.

So what do you think? How would you invest $1000? Let me know in the comments below.

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Posted on June 23, 2016.

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