Lazy Man and Money

Doubling the Kids’ Money with Robinhood

by 2 Comments

This is going to be another short article today. I am still swamped with dog sitting business. I love that so many people are getting vaccinated and traveling. I also love that almost everyone decided to get a dog in the last year and a half. The only downside is that I’m constantly doing meet and greets, and booking appointments. I had two meet and greets yesterday and during one, I had an emergency last-minute request from someone who needed to travel for work, but their dog regular sitter was on vacation.

After more than a year of very few dogs to sit it is an overwhelming, but a welcome change.

In any case, I didn’t intend to write about dog sitting today. We can save that for the May financial update that should come out early next week. Instead, I want to talk about investing your kids’ money.

I started an investment account with Robinhood when the kids were 2-3 year old. In July that will be exactly 5 years ago. It’s a perfect time to look back and see how that decision went.

I don’t like to invest other people’s money. There’s just too much risk if it doesn’t work out. Fortunately, a 2 and 3 year old weren’t going to feel too much one way or the other.

I could waste a lot of words to build suspence before giving you the results, but I wasted that opportunity in the article’s title. Here’s how they’ve done:

Robinhood

For full disclosure, the results include a little free stock from Robinhood from referring friends (and website visitors). If you sign up here, you’ll help make a couple of kids very happy as they’ll get some free stock… and you will too.

No worries if you don’t sign up, because they are already very happy with the growth of their money. They are starting to figure out how money works, but grasped the idea that twice as much money is better a while back.

I should be open and say that there’s no guarantees that you’ll double your money when you invest via the Robinhood brokerage. The brokerage doesn’t make your money double, the investment choices do. The rule of 72 would indicate that they’ve made 14.5% interest per year. My kids have been lucky with that great bull market and I expect things will slow down in the future.

They’ve been mostly in the US total market (via Vanguard’s VTI ETF), but sometimes I buy some fun stuff for them like a gaming conference company or a little Dogecoin. That’s the advantage of having free trades with Robinhood. Five years ago, brokerages offering free trades were rare, but they are more common now.

The other thing I should note is that Robinhood doesn’t have custodial accounts for kids. I had to put the account in my name and I’ll have to pay taxes on it when it’s sold and distributed to the kids. Hopefully, since they are long-term capital gains, they won’t be so bad. Since having separate accounts was difficult, I simply added the same money from each kid whenever I do a cash deposit. This way they’ll each own 50% of the account.

The Psychology of Love and Money

by 2 Comments

A little while ago, I got an email from a Dr. Daniel Crosby who works at IncBlot Organizational Psychology (seems like he runs the company, I couldn’t tell for sure). How long was a little while ago? I remember when I got it, because it was the day my son was born. Little Man is over 9 months old now. I am a heel and should have covered this before now.

The email caught my attention. I get a little bit of a kick when a doctor sends me an email that starts with “Hey Lazy…” (I know I brought that on myself.) I get a lot of requests from people to highlight whatever it is they are working on with my readers. I’d say that over 99% of it is junk or nothing very special. However, Dr. Crosby’s work was different. It was a TEDx talk. If you aren’t familiar with TED, I don’t know how you found my website. However, Wikipedia gives a good introduction. I’d describe as a bunch of brilliant people imparting their best wisdom on the world… and you get to watch it free!

I hesitated to embed the video here just because it’s over 18 minutes long. I understand your time is valuable. I found this more entertaining and informative than almost everything on television today. In case you didn’t get it from the title of the article, the video is about the psychology of money. As you might guess, people don’t always act rationally to money. (If they did, this video would be very boring.) The video covers some of the irrational ways we act. I don’t know if there are official terms for psychological phenomena that Dr. Crosby talks about, but I’ll cover a few after the video:

The talk focuses on four specific psychological pheneomena, but I’ll outline the whole thing here to make it easy for you. One of the great things about the talk that I overlooked the first time (I was focused on the money) is that he compares the irrational behavior that people have with love with money.

  • I Can Change Them
    • We Feel We Can Change Lotto Odds – In love, people often have a bias towards fixing someone (for lack of a better term). We feel we can change them. When it comes to money, we are the same way. In a $100 lottery with 50 tickets people are willing to pay nearly $2.00 for a ticket that is choosen for them (as you might expect). However, if they are given the chance to choose the ticket, they’ll pay almost $9. We think we can change the odds. (I asked Crosby for a citation of this and he said believed it was from Langer 1974 in the Journal of Personality and Social Psychology.)
    • We Over-Invest in What We Know – We think our experience with the company or product is going to lift the stock price. He cites the Facebook IPO and how Facebook warned us about the financial problems with the company.
    • We Invest in companies we work for… even when we don’t significantly matter to that company’s success. The example cited is the person who works for Coke and invests in the company. You aren’t likely to change Coke unless you are meeting with the C-level executives on a fairly regular basis.
  • This Time It’s Different – The example here is that Liz Taylor believed this each of the numerous times she got married. In terms of money, the phenomena is called New Era Thinking. He cites the tulip bubble in the Netherlands in the 1630s where people would pay 10x the yearly pay of a skilled guilder for a single tulip bulb. Dr. Crosby says that it’s easy to dismiss this kind of thing as antiquated thinking, but it comes up recently with the tech bubble and he cites eToys when it was valued more than Toys R Us when it very little sales and no profit.
  • Prince Charming Bias – A high-impact, low-probability event will come sweep us off our feet and make all our romantic or financial problems disappear. He points out the stories of Cinderella, Snow White, and Sleeping Beauty. Only Sleeping Beauty’s Prince has a real name. It’s not important to the story for the other princes to have names, we know what they stand for which is what matters. Dr. Crosby compares this to the lottery. The people who play the lottery are the ones who typically can least afford to. Those with masters and Ph. D. are the least likely to play. He cites that you are 9 times more likely to be crushed by your television than to win the lottery, but you’d never bet on such a thing. If you do win the lottery, be careful what you wish for, because there is a good chance that you’ll gain weight, not be happier, and broke in five years.
  • Just Can’t Quit You Bias – Breaking up with a partner is terrible (this isn’t exactly news). We have same problem with money. The gambler can’t quit the table, because he can’t stand being a loser. A person buying a stock that loses money tends to ride on it to the bottom, because they can’t stand a sure loss.

I had a few thoughts while listening to this presentation. When Dr. Crosby was talking about Facebook, I recall that I bought some at $26 and some more at $19 because I realize that a number of people have a “Can’t Quite You Bias” with the company. (At those prices, I found the valuation fair. I sold off most of my ownership at $33 at locked in some gains.) His response was that at some price Facebook makes sense, just not $38. (I agree.)

I also thought that the eToys vs. Toys R Us was an interesting comparison. What if it was Amazon vs. Barnes and Noble? Ebay vs. Sotheby’s? His response was that eToys had a lot more vapor surrounding it. I remember Amazon being referred to for years as Amazon.org, because they never made a profit. He agreed that breakthrough companies do indeed change the game. The problem is figuring out what these are. Seems like Netflix has been up and down that roller coaster a number of times.

In the end, these biases are certainly worth acknowledging. It reminds me a lot of the article I wrote about why people buy into MLM health products that appear to be nothing more than snake oil.

Is March Money Madness a Scam?

by 5 Comments

Another day, another scam (maybe?). As Buffy the Vampire Slayer once famously said, “… must be Tuesday”. (Since it is actually Tuesday, I don’t mind referencing that twice in the last few posts.)

I got a Twitter shout out from Rob Wilson about a collaboration idea. He seems to run a reputable Rob Wilson TV channel, which has quite a few clips of him on his local news affilate as an expert. One of the videos mentions that Wilson is a founder of Blazer Capital Management. Rob Wilson passed the sniff test. He definitely does not fit the scammer profile.

I told him to email me with his collaboration idea. Wilson explained something called the March Money Madness Bracket Challenge. His idea was to create a “financial education tool with a gaming component to use sports as a way to educate people about finance and investing (topics many people don’t find fun or interesting).” This is a concept that I can certain back as I’ve felt that an entertaining game is a good way to learn personal finance.

It is patterned after the March Madness basketball brackets with 64 stocks in 4 regions: Consumer, Industrial, Financial and Technology seeds based on their YTD returns as of the end of Feb. “The “games” between the stocks in the bracket occur during one week in the real life stock market. The stock with the highest return during the week wins the “game” and so on until a champion is crowned.

At this point in the explanation, I start to have my doubts. How much financial education comes into play for Apple to beat Google in any given week? I would think that making money investing would be more motivating than a game such as this.

Where do I come in? I would be a VIP player and others could match wits against me in this tournament (I guess no one told Rob that it wouldn’t be much of a challenge.) The offer was on the table to give me incentives to get people to play the game.

As I looked into the March Money Madness (MMM) website a little further I saw that there was a $5 entry fee and the winner would get 50% of the entry fees. This seemed a little like a 50/50 raffle… and perhaps a bit of an illegal lottery. I did a little searching and found this for my state of Massachusetts:

“Q: Can a nonprofit organization hold a 50/50 raffle or distribute a prize from the money collected from the sale of raffle tickets?

A: A nonprofit organization may hold a raffle to award various prizes that are announced in advance, such as a motorcycle, trip or television. If, however, the prize is cash (such as in the case of a 50/50 raffle where the winner receives 50% of the proceeds) or a portion of the prize is derived from the raffle proceeds, the raffle may run afoul of the prohibition against pooling contained in M.G.L. 271, s. 16A and 17.”

As far as I know MMM isn’t a nonprofit, but the rest applies almost exactly as Wilson has designed it. You’d think that for-profit entities would be even more strict.

I expressed this concern to Wilson and he came back with “March Money Madness is not a pool, lottery or a game of chance. March Money Madness is a skill based game. As is the case with fantasy football, March Money Madness is not an illegal competition. The Unlawful Internet Gambling Act 0f 2006 (PDF) specifically excludes fantasy sports.” He also assured me that he worked with an attorney to ensure that the game is legal.

This reminded me that I read that office March Madness brackets every year are technically illegal. Surely, they would be a skill-based game. In fact, one could say that all betting on sports is skill-based to some degree. This was starting to remind me of bidding fee/penny auction scams where a strong case could be made that they are a game of chance while the ones running the auction claim it is a game of skill. In any case, since we had an easy parallel, I searched to see if the office pools were indeed legal as games of skill. Articles from LegalZoom and NPR confirm that they are not. The NPR one specifically states that making money off the bracket and crossing state lines are “almost certainly violating the law” as “virtually every state prohibits someone from conducting these types of gambling activities where they’re receiving profits for operating the gambling activity.”

I decided to check out the Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA) and after about 30 seconds of getting annoyed at the legalese (sometimes I earn my Lazy Man name), I decided to do more research elsewhere. That’s where I came across some of my strongest evidence in a Forbes article: Why Is Gambling On Fantasy Football Legal? According to the article UIGEA,

“carves out a safe haven for any fantasy or simulation sports game that:

‘…has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events…

‘

In other words, fantasy sports are considered games of skill – not chance – if they can be won by successfully utilizing superior knowledge of the players involved. The Act adds that the game in question cannot have a prize that is determined by the number of players or amounts paid (think betting odds on game picks), but rather is established in advance of the game’s start.”

(I hope the quotes inside the quotes didn’t confuse you there.) At the very least this affirms the MA state law that the 50/50 part of the game is not legal as the prize would be based on the number of players and the price they paid.

The next question the article deals with is whether fantasy football counts as a game as skill, noting that losing a star player to injury could be considered bad luck. However, the article cites that this has been tested in the courts and they ruled “that fantasy sports are games of skill because players actively manage their teams, employing their sports knowledge and making strategic decisions.” So the skill would be in having good back-ups and navigating the bad luck that happens throughout the season. In the end, the author doesn’t seem to be believe that fantasy football counts as a game of skill noting that the high volatility of a player’s performance week to week could make it a game of chance. I have to agree. I played one season of fantasy football and I had the team that scored the most points overall in the league, but I finished with a 5-11 record as each week I got pitted against players who had their career days (Jahvid Best’s 220+ total yard game still stings.)

I strayed way too far from the yellow brick road there. Get back to the point, I don’t see how picking a bracket and submitting it once matches up with an active management. In fantasy football, there are many different options to deal with an adversity or under-performance such as pick up a free agent or make a trade. In MMM, if your top seed gets knocked out early, you can’t do anything about it except kiss your $5 goodbye.

Even if the UIGEA allowed it on a federal level, I would think that state laws would prohibit it. I realize that federal law supersedes state law. However, when a state makes something illegal like pumping your own gas in New Jersey, you can’t claim that safe-harbor due to the federal law.

As I publish this, I’m still waiting to hear back from Rob Wilson about the last several points. I suspect he’s slow in getting back because he’s getting a refund from his attorney. In any event, I won’t be participating in this scheme and I hope you don’t either.

Money Rules by Jean Chatzky Reviewed

by 4 Comments

Money Rules by Jean Chatzky
Money Rules by Jean Chatzky

What’s this? Two book reviews in two weeks? Are you really reading Lazy Man and Money? Have I gone mad?!?!

For years I’ve shunned book reviews. Why? Reading a book in addition to all the blogs and other things I read daily is a lot. It takes me 6 to read a book on a good day (I’m not a fast reader), and then writing up the review can take a couple more. It’s a commitment and not one that fits well with my cat-like attention span.

So why am I reviewing another book this week? There are two reasons. One is that it’s from Jean Chatzky. Despite the fact that I’ve been waiting three years for an email interview that her publicist promised, I think she’s got some of the best advice of any personal finance guru. The other reason I’m reviewing it? It is 109 pages and just about every page consists of just a few sentences. Some are simply pictures. I didn’t time myself, but I’m guessing that almost anyone can get through it in about 40 minutes.

Today’s book is Money Rules: The Simple Path to Lifelong Security by Jean Chatzky. The book itself consists of 94 rules. I’m surprised at the number. You’d think they’d stretch it to 100 or 101 for marketing purposes. It seems like it wouldn’t have been that hard to come up with a few more. Since the book is so short, this review will be as well. The 94 tips in general are pretty good ones, but ones that many would expect to know. For example, there was one about smoking, essentially pointing out the monetary costs to it. I’m on the fence about criticizing it because if it weren’t there, the book might seem incomplete, but by including it, it went a little bit into the common sense territory. I think the best tips were the ones that pointed out the psychology behind spending or saving.

I didn’t find myself agreeing with all the tips though. Tip #19 suggested that you carry $100 bills rather than $20 bills because psychologically it is more difficult to spend that big bill. If you combine that with rule #18, which says that you’ll spend less if you pay in cash rather than credit, you may find yourself not being able to purchase things like lunch. Not every place takes $100 bills and some places limit the change that they have on hand. Another of the rules, #39 was so vague that I don’t understand it all, “Always get three bids. Never take the high one.” It’s in the spend wisely section, so I guess this would mean that I should get three bids for landscaping and never take the most expensive one. That seems to be over simplistic. I’m sure there’s a case where the most expensive of three landscapers does offer a better level of service.

Oh and I like do with all the books I review, just to prove that I did read the book I’ll point out the page with the error. Page 101, which has tip #88 should be “leaving $20,000 to your kids”, not “leaving $20,000 to you kids.” The irony that I’m a great proofreader of other people’s writing and a terrible one of my own is not lost on me.

The Bottom Line: I’m of two minds on this book. On one hand, there’s great value in having something concise and to the point. On the other hand, it’s not a lot of information for $13. I could see it as a gift for someone graduating college. It’s got enough of the beginner tips, and it doesn’t require a commitment to read. It also says, “I spent nearly $15 on you and I care about your financial future”, so that’s a good thing.

Spring Cleaning of My Financial Mind

by 4 Comments

I’ve had a lot of small quick thoughts on my head lately. Time to clear them out…

  • How Much Does it Cost to Drive a Car – Watching the Today this morning… Christie Hyde from AAA says it costs 42 to 68 cents a mile to drive your car. Going from a small to medium sedan will raise your price from 42 cents to 54 cents. That seems like a big jump to me. She mentioned that one of the things people forget to factor with cars is depreciation. One of the suggestions to save money was to save money on gas, but they didn’t suggest buying a used car to cut on that depreciation.
  • California 9% Sales Tax – I don’t think it’s a 9% sales tax for every county, but it’s been raised up to 9% for me in Silicon Valley. A 10.25% sales tax has been proposed for nearby Oakland. I realize the money comes from different pots (Federal, State, County, City, etc…), but it’s strange to me that last year the government was creating a stimulus package to encourage spending. Now they are raising sales tax which encourages me not spend. Maybe I should advocate that everyone play the lottery a lot more so my taxes will go down… It’s almost crazy enough to work.
  • Hawaiian Airlines Rocks – This is no surprise to me or my wife but Hawaiian airlines were top rated. We flew them from Hawaii to Australia last year and it was an amazing flight. They had free beer and wine open bar, multiple meals (that were very, very good), and I’m not joking, but snack break with Ben and Jerry’s ice cream. We always take the lowest-cost flight, so we weren’t expecting much, but it was incredible.
  • The Boston Globe May Be Closing? – Not long ago, this was completely unfathomable to me. The Boston Globe is central to the city – far more wide-read than the Boston Herald. It’s no secret that Boston and New York have a little rivalry going on (heard of the Red Sox and Yankees?), so can I start the conspiracy theory that the New York Times bought the Boston Globe, just so it could shut it down 15+ years later? I’m joking of course.
  • Hannah Montana Movie – I chuckle about the statement of “tired of living a double life” in the upcoming previews. Lazy Man hears what she’s saying.