need for central bank

In a financial panic, the demand for money soars as people flee bank deposits and weaker securities and move into cash. But without a central bank to supply the sudden demand, a panic tends to feed upon itself as perfectly sound banks are forced to close when they are unable to liquify their assets fast enough to meet the demands for withdrawals.

Investing

Investing should be dull. It shouldn't be exciting. Investing should be more like watching paint dry or watching grass grow. 


If you want excitement, take $800 and go to Las Vegas...it is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office.


- Paul Samuelson

be grateful

unconventional financial advice

1. Buy small term life insurance to protect yourself against the early loss of a spouse's income.

2. Disability insurance is crucial to your safety net since you rely on your earned income for most of your life.

3. If you want to be able to use your money while you're alive, yet not outlive it, you've got to make sure that any catastrophic medical bills will be covered by someone else. That means maintaining good major medical coverage before and after you reach age sixty-five, through some combination of private insurance and eventually Medicare and Medigap.

4. Reverse mortgage your home while you're retiring - The income you receive is tax-free since it's actually a loan. All the fees and interest aren't paid until the loan is settled upon your death.

5. Instead of inheritance, give tax-free gifts during your retirement. Don't wait till you die - you won't benefit, only the IRS will.

Life is not a sprint, it's a marathon

1. Age 65 isn't old - when FDR picked sixty-five as the retirement age, the average American lived to sixty-three. Today the average American lives to seventy-five. And by 2040 the average American will be living to eighty-one. Age sixty-five will no longer be the onset of old age for baby boomers. For you, it will be the beginning of middle age.

2. You're on your own path - There's no longer a predetermined path. You're on a voyage of discovery that could take you from project to project, employer to employer, employment to entrepreneurship, industry to industry, perhaps even career to career.

3. The only finish line is death - Just as the path you take is up in the air, so is your time line. The only finish point you should worry about anymore is death. Up until then you can do whatever the market and your skills will let you.

4. You're not a job chronology - Just as you're no longer your job, your career is no longer just a chronological listing of where you've worked and what titles you've held. You are a constantly expanding package of skills and abilities that can be applied to solve a host of problems or tackle a range of projects, large or small, short-term or long-term.

5. Just grow your money - Throw away all those frightening tables and formulas that tell you how much you have to be investing and at what rate of return in order to retire comfortably at age sixty-five. There's no more rote pattern. This isn't a race. No one is measuring you. Instead you've got a fairly simple goal: grow your wealth as much as you can, as quickly as you can, within your own comfort range.

6. Rethink risk - But you should definitely rethink that comfort range. Most folks have based their risk/reward analyses on retiring at age sixty-five. If you're a boomer and you're not retiring, you've got lots more time to recover from stock market setbacks—perhaps as many as twenty more years. That means you should stick primarily with equity investments far longer than those traditional charts and formulas say. Don't take your foot off the gas too soon.

7. Keep a liquid reserve - If you're going to keep the pedal to the metal, you'll need some backup. In the twenty-first century anyone looking to practice sound money management will need to have, access to enough cash to cover six months' worth of expenses in order to overcome detours along their chosen routes.

8. Cover your income, not your life - At the same time you'll need to have adequate insurance protection for when minor detours turn into serious redirections. That means maintaining the best health insurance coverage possible, and most important of all, having the maximum disability protection. Almost all my clients start off having more life insurance and less disability insurance than they need. I'll wager you're no different. The longer you work and the longer you live, the bigger a mistake that becomes.

Conclusion - Giving up the pursuit of retirement has a great many practical and psychological advantages. But it also has an added spiritual bonus: By eliminating the finish line, life stops being a race. With all of us on our own path there's no way your progress can be compared to anyone else's. No one—not your parents, your friends, or Money magazine—can look at your life and say you're not as far along as you should be More important, you can stop measuring yourself against an arbitrary standard and feeling inadequate for not meeting the grade. You're on your own unique self-charted journey. Where it ends only God knows so until then all you can do is keep rowing.

- Stephen Pollan

Accomplish and Achieve, Don't Accumulate

Debt is Slavery: People go into debt because they want to live a lifestyle beyond what they can afford.

Possessions are a Prison:

When was the best time of your life?

I would guess it's something like:

- The idyllic two weeks at summer camp when you were a child.

- The two-month backpacking trip across Europe.

- The trip to Mazatlan for spring break.

- The winter you spent at Sun Valley as a ski instructor.

- The family road trip across the United States when you were 12.

What's common among these experiences?

- You had the freedom to do whatever you wanted. You had few, if any, obligations.

- You were footloose and fancy-free.

- You weren't burdened down with STUFF.

Debt + Possessions can trap us and force us to do things we don't necessarily want to do.

We borrow money to buy things we don't need and don't use, which forces us to go to a job we hate so we can pay back the money we borrowed to buy things we don't need or use.

Our society focuses on accumulating possesions. Somehow, owning certain stuff is supposed to give us self-worth. Don't define your self-worth by what you own. Instead, concentrate on accumulating accomplishments and experiences, not stuff. Stuff can be stolen, broken, or destroyed.

Nobody can take away what we accomplish. Create something.

- Michael Mihalik

How to Start a Hedge Fund for Dummies

1. He parks the $100 million in one-year Treasury bills yielding 4 per cent.

2. This then allows him to sell for 10 cents on the dollar 100 million covered options, which will pay out if the S&P 500 falls by more than 20 percent in the coming year.

3. He takes the $10 million from the sale of the options and buys some more Treasury bills, which enables him to sell another 10 million options, which nets him another $10 million.

4. He then takes a long vacation.

5. At the end of the year the probability is 90 percent that the S&P 500 has not fallen by 20 percent, so he owes the option-holders nothing.

6. He adds up his earnings — $10 million from the sale of the options plus 4 per cent on the $10 million of T-bills—a handsome return of 15.4 percent before expenses.

7. He pockets 2 percent of the funds under management ($2 million) and 20 percent of the returns above, say, a 4 percent benchmark, which comes to over $4 million gross.

8. The chances are nearly 60 percent that the fund will run smoothly on this basis for more than five years without the S&P 500 falling by 20 percent, in which case he makes $15 million even if no new money comes into his fund, and even without leveraging his positions.

- Niall Ferguson

If the market drops more than 20 percent, start over with new fund. Bye-bye old investors, hello new investors.

Status Change

One of the remarkable phenomena of the eighties was the transformation of investment banking into a glamorous, even sexy profession. Investment banking used to be considered a rather unexciting job that involved courting corporate officers socially and analyzing reams of statistics. The social duties aside, it was seen, in many respects, as little more than glorified accounting and salesmanship. For business school graduates in other times, the excitement lay in corporate management, in running large, publicly held companies. The executives of major corporations were considered to be the ones who wielded the real power. Even within the business of providing corporations with advice, management consultants enjoyed more cachet than investment bankers. To many people, the transformation of investment banking into a glamorous profession in the eighties was baffling.

- John Taylor