Lazy Man and Money

Four Surprising Ways To Grow Your Local Business

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Happy June everyone! Things are super busy here. My wife had been traveling for the last 10 days only to come back and test positive for COVID. She’s doing well. The rest of us had it 4.5 months ago and haven’t caught it again, yet. It’ll take me some time to catch up.

I’m usually focused on things that are of interest nationally. I realize that the majority of the readers out there don’t care too much about things specific to Rhode Island. It’s easy for me to forget that there are thousands and thousands of local small businesses. There are lawyers, real estate agents, painters, plumbers, insurance agents, and electricians.

I cast a wide net to the whole world hoping (and often failing) to get a good number of readers. A local real estate agent can narrow their search to a couple of cities. It sounds a lot easier to me because there is less competition. Then again, that real estate agent will likely never experience the joy of someone showing up to his business from the other side of the world.

I’m starting to enter that world of running a local business. My Rover dog sitting business is doing well. So far, I’ve let Rover just send me customers. However, I think I’m going to start to explore getting my name out there myself. Rover.com’s finder’s fees are 20%. They do a great job with their booking software and they do all the advertising, so it’s not a bad deal. However, sitters could lower their prices by 8% and still give themselves a raise of 12% by doing it themselves.

With that in mind, I wanted to look at four ways to grow a local business:

1. Your Local BNI Group

About nine months ago, I had never heard of a Business Network International – BNI group. I was talking with a parent at my kid’s school and my wife mentioned that I had gotten into dog boarding and business has been booming. It was a small side hustle until everyone got vaccines and tried to catch up on 18 months of missed travel.

The other parent was a well-known real estate agent and asked me, “What would happen if they change the website?” Yep, Rover.com could put me out of business overnight. That’s never a good feeling. He said he belonged to a local cult group that meets once a week and shares business referrals. He invited me to check it out and I honestly only went because he was giving away Patriots tickets to a lucky visitor. I didn’t get the Patriots’ tickets, but I did see my other son’s best friend’s mom there. In fact, all the occupations from the first paragraph came from the local chapter. I get dog sitting business from a network of a network and I have some great people to help manage our rental property.

2. Telephone Book

Believe it or not, the telephone book is still a good place to advertise. I was surprised, but I came across this yellow page advertising article. It seems like it depends on the industry, but it really can work.

3. Direct Mail Campaign

I used to get a package of local coupons in an envelope every couple of weeks. It seems like it hasn’t happened since COVID though. It seems like most of the advertisers were for nails or spas. There were also a lot of products tied to new moms. I still went through each one and looked to see if there was a good deal that we could use.

4. Radio Ads

I was reading that radio ads reach more people than Google or Facebook ads. It sounds unbelievable, but I know I listen to a good amount of radio. They’ve got me as a captive audience in the car.

Final Thoughts on Local Advertising

I’m not sure if I’ll try telephone books or radio ads for my dog boarding business. It would easier to justify it if I was renting physical space instead of running a tiny gig business. I’ve had some luck with putting my business card at hotels that aren’t pet-friendly. They love having someone they can call at the last minute to save the day when someone shows up with a dog.

My best suggestion is to try a little bit of everything and do more of what works.

529 Plans: 29 Thoughts for 5/29

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Happy 5/29 Day! Regular readers probably already know that a 529 is a college savings plan. New readers who didn’t know that, just learned something.

529 PlanI first started looking into college savings plans in 2007, when my nephew was born. I wanted to give him a little head start. I loved the idea my gift would be multiplied thanks to the power of compound interest.

Unfortunately college savings plans can be a little difficult for a new parent (or uncle) to understand. This lead to my How to Choose a 529 Guide.

I put in a little money to seed the account and added more on birthdays and holidays. My nephew got himself an awesome little sister, so I opened up an account for her too. Grandma occasionally pitched in some money as well.

Today, their accounts have more than $6,000. More than half of that is from market gains. Hopefully, that will buy a few hours of lecture by the time by the time they are in college.

Nowadays, we’re a little more focused on saving for our own kids. We’ve got some work to do on that front, but we do have $20,000 saved. That’s enough about our situation though. We have my wife’s GI Bill. We’re investing in their education with the best private school in the area, so they better earn scholarships too, right? Finally, we want the kids to have some of their own money for their own education so they don’t skip classes.

In short, there are a lot of ways to save for college. Today we’re focused on 529 plans. Let’s get into 29 thoughts on 529 Plans on 5/29.

1. When money from a 529 plan is used for a qualified education expense, there are no taxes to pay on the investment gains.

2. Unfortunately, it’s difficult to get great gains on a 529 plan since they are typically compounding for less than 20 years.

3. You might be able to reasonably double your money twice in that 20 years. Thus one dollar invested at a child’s birth may be worth four after high school graduation. This assumption uses the rule of 69 with 7-8% investment growth.

4. Thus, if you put one year of tuition in a 529 account at birth, it could fund their entire college education. (Unfortunately, very few people have tens of thousands to invest when a new child is born.)

5. 529 plans are run at the state level. As soon as you are done with this article, you’ll want to look at your own state’s specific plan.

6. Some states give you an extra incentive to open a 529 plan. My state, Rhode Island, gives a $100 grant if you sign up for a 529 plan when your baby is born.

7. I used this idea to help motivate a blogger friend to start a 529 plan. I offered $25 and a couple of other bloggers joined in.

8. Some states allow for a tax deduction or credit for saving in a 529 plan.

9. Some states have better investment options than others. When I lived in California there was no tax incentive for me to invest in the state plan. I decided it was best to invest in Ohio’s plan which had Vanguard funds with low expenses.

10. 529 plans can be rolled over to a new beneficiary such as a child. This can be done indefinitely, possibly creating a family legacy of education funding and compound interest.

11. 529 plan money can be used to buy computers. See this IRS page for more details.

12. 529 plan money can also be used to buy computer software subject to the same IRS rules mentioned previously.

13. 529 plan money can even be used for internet service.

14. 529 plan money can be used for tuition at private or religious elementary or secondary schools.

15. 529 Plans can be used for community and technical schools.

16. 529 Plans can be used for some nontraditional schools such as the Golf Academy of America, the commercial diving program CDA Technical Institute, and the Le Cordon Bleu College of Culinary Arts. Yes, golf, diving, and cooking can qualify.

17. 529 Plans can be used for online schools.

18. 529 Plans can be used for hundreds of international schools. Check with the government searchable database first.

19. 529 Plans can be used for online schools. Again, check with the government searchable database first.

20. There’s a limit of $10,000 per year for elementary and secondary use.

21. If your state has a tax deduction for 529 plan contributions, you may want to funnel money through the plan to save on your state tax.

22. If the beneficiary gets a scholarship an equivalent amount of the money in the 529 plan can be used penalty-free. However, taxes on the gains will apply.

23. Alabama and Illinois have a 529 Rewards Visa card where you can earn 1.529% rewards on your spending. A small annual fee may apply. As always, it’s best to pay off your credit cards every month to avoid the huge interest charges.

24. One of the best ways to grow a 529 is simply to create an automatic monthly transfer from your income. This “paying yourself first” creates forced savings.

25. A wealthy relative can use a 529 plan to circumvent the gift tax by “superfunding” 5 years of contributions ($70,000) in one year.

26. Almost 300 private colleges and universities belong to a Private College 529 Plan. It’s the only 529 plan not run by a state and it allows you to lock in tomorrow’s tuition at today’s rates. It’s not an investment.

27. However, if you plan to contribute to the Private College 529 Plan and go to a school that doesn’t participate, you may have done better investing in a regular 529 plan.

28. It’s possible to combine a Private College 529 for tuition and a regular 529 for other expenses such as room and board.

29. As 529 plans are intrinsically linked to taxes, please consult with your tax advisor before implementing anything mentioned here.

If you’ve made it through all 29 thoughts, I hope that you’ve been inspired to investigate at least a few of them further. Let me know in the comments if you have followed any of these down the rabbit and what your experience with 529 plans is.

Free Form Friday!

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I’m doing something a little different this Friday. Instead of one main article, I’ve got a few different thoughts on my mind. Typically, I’d do this on Twitter, but things disappear on the timeline fast that it doesn’t seem worth it.

Giveaway on Kid Wealth

I’m giving away a course on entrepreneurship for kids ages 10-18 on Kid Wealth. It was created by a financial expert with the certifications and credentials to match. It includes twice a week live video conferences for accountability. It’s timed perfectly to fight your kid’s summer learning loss. By the way, I know a guy and he says your odds of winning are extremely good. Go here to enter.

Plutus Awards

The other news is that the annual Plutus Awards are taking nominations. The Plutus Awards are like the Oscars, Emmys, or some other award show with a red carpet that my wife watches. Except it’s for personal finance… and there’s no red carpet and it’s not televised and it’s not reported by the news. Nonetheless, it’s important to me to continue a streak of never winning one. I could take the easy way out and simply ignore it, but that’s no fun. It’s much more fun to play the game.

However, to get in the game, I need your help. I need to be nominated. That means that someone has to go to the Plutus Awards Nominations Page and enter in my website in a relevant category.

Below are a few suggestions. My best chances may be the first two. Regular readers know that Lazy Man and Money covers personal finance very broadly. I can write about military pensions one day, investments the next, and college planning after that. That means it doesn’t fit in a nice category. I’ve been a finalist for a Lifetime Achievement, so that seems like the best path.

Secondly, Kid Wealth is perfect for the best financial literacy content for children. It’s a perfect fit unless some of the other categories and Lazy Man and Money

  • Lifetime Achievement – LazyManAndMoney.com
  • Best Financial Literacy Content for Children – https://KidWealth.com
  • Best Family or Couples Personal Finance Content – LazyManAndMoney.com
  • Best Financial Independence or Retire Early Content – LazyManAndMoney.com

Make Extra Money

Does inflation have you worried? It seems to be on everyone’s mind these days. The people from Savings Advice have a blog post on how to make more money on the side. I got started dog sitting several years ago with the idea of making a couple of hundred extra dollars a month. Now, I make thousands and thousands. This blog was designed to explore side hustles and then it became one itself!

Savings Advice is probably one of the oldest personal finance websites on the internet. Some people have created blogs on the site and have run them for more than 10 years. They also have some money forums which is a good place to get some quick money answers.

Introducing the Lazy Man Rule of 20

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At the start of 2020, I took a fresh look at the stock market and realized that it was up about four times from 2010. Many people who had $250,000 in the markets in 2010 are now millionaires. My wife and I started working before 2000, so we had already saved up a lot in our 401ks and Roth IRAs before 2010.

I was excited by all this progress. The plan was working to perfection. I had a fear… I didn’t want to lose all these gains. However, we weren’t 45 years old, so we still had a decade or two before we started to access these retirement accounts. I wanted to stay invested, but I didn’t want to take the big risks that I did when I was 25. At that time, not only was I young, but the market had collapsed with the Dot Com bust of 2000. It was the perfect time to buy growth stocks.

In 2020, it looked like technology dominated the stock market. The world’s biggest companies were not GE, Walmart, Citibank, and Exxon like they were back in 2000. Instead, we have GAMAF: Google, Apple, Microsoft, Amazon, and Facebook. (I’m substituting Microsoft for Netflix in the popular FAANG acronym.) To reduce tech risk I replaced much of the major total market index ETF I had (VTI) with a high-dividend index ETF (HDV).

I may have lost out on some gains as the pandemic was great for tech stocks. Alternatively, many companies cut their dividends. However, vaccines came out and the boring companies that are in the high-dividend index are thriving. Those boring consumer staples and energy companies are in-demand as they are generally inflation-proof.

There was one other way that I tried to protect our money in 2020. I added more bonds. I haven’t been a big fan of bonds because historically, the best returns come from stocks. I’d rather have 60 years of 10-12% returns than 60 years of 4-6% returns. However, with stocks in a 10-year bull market, I felt it was best to move some money to bonds to diversify with a lower-risk asset. I slowly started to buy Vanguard’s major bond ETF (NASDAQ: BND).

Fast-forward to today and I was either smart or very lucky. I think maybe it was a little of both. HDV is only down about 5% from its highs. VTI is down around 20%. The tech-heavy NASDAQ index has been off of its highs by about 30%. Bonds haven’t been great as they’ve been down about 11% – but they are at least better than VTI.

One of my good friends has an Investment Policy Statement (IPS) that she loves. An IPS puts down in writing how you are going to invest in advance of any market conditions. The beauty is that once you have your philosophy in black and white you simply have to just execute it. I’ve been thinking about creating one for some time, but I’ve been living up to my Lazy Man moniker on that one.

With the market going down and possibly heading further down, I’ve started to think more seriously about what might be in my IPS. One thing I know for sure would be a valuation-based asset allocation. I know a lot of people stick to one asset allocation and change it to be more conservative as they grow older. One old rule of thumb is that you should subtract your age from 100 and have that percentage in stocks. Thus, at age 45 now, I would have 55% in stocks (100-45). I’m an aggressive investor so that rule of thumb doesn’t sound great to me. (It may work beautifully for you though.)

While I do believe that age should be important in asset allocation, I also believe that the market’s valuation should be considered. Here’s a chart of the Shiller P/E:

The Shiller P/E is an indicator of how expensive the market is. The higher the number, the higher the price you are paying for the earnings. One thing that you’ll notice is that for 125 years until the last decade, when the P/E is above 25 there’s been a crash. It can stay up there for a little while. It almost always crashes at 30 until the last ten years or so. It’s crashed down a bit from 37, but could still have some way to go.

That’s why I came up with…

Lazy Man Rule of 20

The Lazy Man Rule of 20 says that my bonds should be around the Shiller P/E minus 20. When the Shiller P/E was 37, I should have had 17% in bonds. In reality, I had around 15% of my money in bonds. (This is a new rule that I’m implementing now, but it would have been nice to have been at 17% bonds.) Now that the Shiller P/E is at 30, I should have around 10% in bonds. I have been selling off bonds and buying stocks (including the NASDAQ at 30% off), but I still have about 11.25% of my money in bonds. The next day that stocks go down, I may sell 1% of my bonds and buy stocks.

Let’s look at how this may have worked in big market bubbles and crashes in the past. I’ll start with my first year out of college in 1998:

  • Bubble of 1998

    At the top of the market in 1999, the Shiller PE hit about 45. Using my rule of 20, I should have 25% of my money in bonds (45-20=25). In hindsight, it should be 100%, but 25% bonds for an aggressive investor at age 25 is a lot. I may have missed the run-up in 1997 and 1998 as I sold stocks to buy that 25% in bonds.

  • Crash of 2000

    As the market starts to crash in 2000, I allow myself to sell the bonds to buy stocks. Bonds performed well from 2000 to 2003, but the stock market was down 9% in 2000, 12% in 2001, and 23% in 2002. By the time it recovers in 2003 the Shiller PE was 23, which means that I only 3% bonds and 97% stocks. That goes to about 7% bonds (Shiller P/E of 27) until we get to 2008.

  • Crash of 2008

    When the crash of 2008 hits, the Shiller P/E goes to 15%. Suddenly, I was allowed to have -5% bonds. Realistically, I can’t do that, so I get to 100% stocks while the market recovers.

  • Bull Run from 2010 to 2020

    During this time, I’m gradually selling stocks and buying bonds. In 2013, I only have 2% bonds. By 2014, I’m up to 5% bonds. In 2015, I’m up to 6.50% bonds. This continues… in 2017 I had 8%, in 2018, I had 13%, in 2019, I have 8%. Finally, in 2000, I’d be back up to 11%.

One of the keys to my Lazy Man Rule of 20 is that I stay invested. I’m not pulling money in and out of the market. Some people claim that you can’t time the market. Is valuation-based asset allocation timing the market? I think it depends on who you ask. I think it is, but I’m using the market itself to tell me what to do.

Make Your Own Rule

I picked my Rule of 20 out of thin air. It was based on my gut feel and I’ve acted when the stock market is up and down. It was only recently that I made the connection that I tend to have bonds that are Shiller P/E minus 20.

If you are a more conservative investor you might want to choose to keep bonds that are equal to Shiller P/E. Or maybe if you are in retirement, you want to have twice the Shiller P/E in bonds. As I get older, I may move from my Rule of 20 to go through all these valuations.

What do you think? Are you going to explore valuation-based asset allocation? If so, let me know what your rules might be in the comments.

What We Can Learn from the Baby Formula Debacle

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Unless you’ve been living under a rock lately, you’ve heard the news about the baby formula shortage. As a father, I thought I’d leave it to the mothers to cover the whole conversation. I’ve seen a lot of very, very bad uninformed opinions from men on social media. However, I did a lot of feedings, and baby formula was critical. I feel like I should be able to avoid those “bad takes.”

If you haven’t heard, the problem is that one of the major factories that makes baby formula was shut down due to possible contamination. There are only a few companies that make baby formula and those companies consolidate their manufacturing in a few facilities. When one company or one factory is shut down there’s a lot less supply.

There’s more to the story than just that. NPR has a great article on the things that have gone wrong.

Money Lessons from the Baby Formula Debacle

One of the most basic lessons in investing is diversification. It’s okay to buy one company if you are a 6-year-old who loves Disney. Aside from that, most people should be low-cost mutual funds or ETFs that hold hundreds or thousands of companies. Many people may be too young to remember the collapse of Enron, but many of the employees had their retirement money in Enron’s stock. Not only did those people lose their job, but they lost a lot of their retirement money.

There’s not enough diversification of companies nowadays. It’s most profitable for baby formula companies to consolidate their operations in one place. It’s fundamental capitalism to pursue the most profit. However, it seems like there’s not enough competition in the baby formula space. Maybe smaller companies can’t get their products space on store shelves? Maybe they don’t have the big advertising budgets? Maybe they don’t have the scale to produce their products at competitive prices?

I think that if capitalism was really working we’d have competing companies jump into the baby formula space to fulfill demand. I’m not sure that other companies can jump into the space quickly. If the problem is temporary then by the time the new companies get up to speed they might be crowded out by the existing factory coming back online (which it already is).

The lack of diversification isn’t limited to baby formula. As the NPR article above mentions the meatpacking company JBS’s ransomware attack stopped 20% of America’s beef and pork industry temporarily. We also saw that a similar ransomware attack on the Colonial Pipeline cause gas prices to go up.

Baby Formula, Politics, and Common Sense

When the problem happened with the suppliers, one of the first places people turned was the government. The popular cry, “HOW CAN THIS HAPPEN IN AMERICA?!?! WHAT IS THE GOVERNMENT DOING ABOUT IT!” It’s a natural reaction.

However, should the government be regulating the baby formula supply chain to make sure there is ample capacity? I think most people don’t want the government to be involved with private businesses. Some may argue that there should be a national stockpile of baby formula. That’s reasonable, but it does expire and the government will need to be continuously buying up whatever the available supply is and then discarding it… unless we also create a program to give free baby formula (before it expires) to people below a certain income level.

The NPR article mentioned another issue – the problem of importing baby formula. High tariffs are making it not worth importing baby formula. There are also labeling laws that make it impossible to import some baby formula. Hopefully, common sense will prevail and these artificial, man-made restrictions can be lifted in times of emergency.

A friend of mine sent me a message about a news story. It was a famously conservative publication, but I don’t think she was aware. The Republican politician in Florida said she had a friend at the Texas border who sent her pictures of pallets of baby formula for potential immigrants at the border. What struck me as interesting was that there was no journalistic integrity. The “news” article was simply that a politician Tweeted something that may or may not be true. No one in Texas was reporting it. No Texas Republicans were in the report. No organization said that they did a fact check. The only thing that made sense to me was that a politician was trying to score some political points by increasing social media outrage.

Final Thoughts

There are a lot of things we take for granted. Perhaps we shouldn’t. On one hand, the supply generally works so well that we expect that it is infallible. It’s a good thing that it is this reliable. On the other hand, when the supply chain does have a problem, it can be an emergency.

I’ve long felt that there wasn’t enough competition among companies. There has been a lot of consolidation over the years. The stories that companies tell us are that they can be more efficient at a larger scale and pass better prices to the consumer. However, I think we are seeing that once the competition is gone, companies can raise prices. Over the long term, the market may correct itself, but sometimes consumers can’t wait for the long term.

I wish we could start to have discussions about this under different circumstances. Once the immediate emergency is over, I’m hoping we can focus on some long-term solutions.