Year: 2009

Please note that Mr. Cheap wrote a very good post yesterday about H1N1 so check it out if you haven’t already – a lot of great comments.

H1N1 (Swine flu) vaccine hysteria has hit my city in a big way – last week there were people lining up for 6 hours to get shots for their kids and presumably themselves as well.  Since the initial clinics the vaccine has only been allowed for high risk groups:

• Pregnant women.
• Children aged 6 months to 5 years.
• People under 65  with chronic conditions.
• People who live with infants under 6 months and/or with immunocompromised people.
• Healthcare workers.

I personally haven’t been that worried about Swine flu so far this year but once the vaccine became available it seemed that the public awareness and concern went up a notch or two.  I know lots of my friends who have kids are worried about the flu and naturally are also worried about the vaccine.  Is it safe?  Will there be side effects?  Will the needle hurt?  (ok, that was my concern).  Here are some vaccine myths.

I think we are going to get the vaccine for our kids – as I read recently, while there might be some risk from the vaccine, it is dwarfed by the risk from the flu itself.  The analogy they used was seatbelts – in some cases seatbelts (and airbags) do more damage than good but overall your odds of survival in a car crash are far better if you are wearing a seatbelt.

What do you think?  Should everyone line up for 6 hours to get a shot?  Are you going to wait a few weeks to let things settle down?  Are you going to avoid the shot altogether?

I’ve been amazed at people’s reaction to H1N1 for a number of reasons.  I was *SHOCKED* that they were able to get the name changed from “Swine Flu” to H1N1 (people involved with the pork industry started oinking immediately after the pandemic started and amazingly managed to get it renamed).  I still like to call it “the pig flu”.

I’ve also been amazed at the crazy reaction people have been having, trying to avoid contact with other people and lining up for hours to try to get vaccinated (and coming close to rioting when they’ve run out of vaccine).  Pandemic is a scary word, but I’m going to go on record saying that we’ll look back at H1N1 and say (much like Y2K or SARS) “what did we get so worked up about?”

Please check out Mike’s post – Should I get H1N1 Vaccine for my kids?

As of Oct 26th, 86 Canadians have died.  This is sad.  Since the flu debuted in April, let’s call this 13 people / month or 0.41 Canadians a day.  The average Canadian has a (0.41 / 33,212,696 [Canadian population]) = 0.00000123%) chance of dying from the pig flu.  Another way of expressing this is you have a 1 in 81,006,575 chance of dying from the pig flu EVERY DAY!!!

Given that Americans have a 1 : 280,000 ANNUAL chance of being struck by lightening (for the sake of simplicity, let’s assume comparable odds for Canucks),this would give us a 1 : 102,270,000 (280,000 * 365.25) daily chance of being struck by lightening (slightly less likely than dying from catching the pig flu).  How many precautions are you taking to avoid that?

In 2005, 2,860 “road users” died.  At 7.83 / day, this gives us 19.1 TIMES the chance of dying on a road (in a car, as a pedestrian or as a cyclist) than from H1N1.  This actually UNDERSTATES the comparison, because we considered all Canadians with the flu, but only “road users” are at risk of dying on the road.  Remember also, this is just fatalities, we’re ignoring non-fatal injuries.

To switch it around and consider a happier thought, the chance of winning the Lotto 649 is 1/13,983,816 = 0.000007151%, or more than double your daily chance of dying from the swing flu, EVERY TIME YOU PLAY!!!  Should we all run out and buy tickets?

Of the hordes stampeding to get vaccinated, how many are avoiding roads?  If we consider the risk of death associated with road use to be reasonable (which, clearly, most of us do), how can we be panicking over something that is far less likely to affect us?

Some may say “well, yes, but there’s a CHANCE it’ll kill me, so isn’t it worth taking some small precautions to avoid it?”.  Yes, sure, but remember there are INFINITE ways to die.  Some of the actions you’d take to avoid some, will INCREASE your chance of others (say you become a shut-in to avoid the dangers outside your home, you’ve now increased your exposure to all the ways you can die at home).  If you can easily get vaccinated and it’ll reduce your stress level, knock yourself out.  Just to pump up the stress back up a little, think about all the things that are more likely to kill you that you haven’t even thought of!

What does this mean for a personal finance blog?

First of all, behaving rationally is worthwhile in life, but it’s VITAL in investing.  Getting caught up in the madness of crowds is what leads to dot-com (or tulip) bubbles.  Just by identifying the craziness as craziness (and getting off of the ride), you can improve your returns MASSIVELY.

Secondly, I’m not sure what they are but I think there must be some killer deals to be had based on the public’s over-reaction to this.  Perhaps now is the time to book a flight and travel on the cheap?  Maybe some stocks are beaten down with investors expecting the next black plague.

How worried are you about H1N1?  Can you think of any investments that would pay off if H1N1 turns out not to be a big deal?

This is my review of Investing Made Simple written by Mike Piper who is the author of the investing blog Oblivous Investor. I’ve highlighted both Mike’s blog and book before and I was quite happy to review the book for him.  I think it’s a great resource for a non-investor or someone who is just getting started and needs a good introduction in one quick book.  It’s reasonably short at 100 pages and contains a lot of good basic investing information to help someone get started with investing.

This is a fantastic book to give as a stocking stuffer idea for that friend or relative who needs some investment guidance but you don’t feel comfortable broaching the subject or maybe you don’t know quite enough yourself to try to teach someone else. It might even be a good book for you if you lack confidence in the investment area.

To order this book:

Here are the chapters titles with some notes

Chapter 1 – Building blocks of investing.

Explanation of various investment products such as mutual funds, stocks, exchange traded funds and bonds.

Chapter 2 – Types of investment accounts

The basic concepts behind common investment accounts such as  Traditional and IRA Roths, 401ks – please note that this is the only chapter that doesn’t apply to Canadians.

Chapter 3 – Risk and Return

This chapter explores the idea about taking on higher risk for potentially higher return. Over the long term it can be worthwhile to take on some extra risk with equities.

Chapter 4 – How much money do you need to retire?

Mike goes over a very simple formula to do a rough estimate of how much money you will need to save up in order to retire.

Chapter 5 – Don’t bother picking individual stocks

He explains quite clearly why it is a waste of time to try and pick your own stocks and suggests low-cost mutual funds instead.

Chapter 6 – Index funds win.

Brief explanation of low-cost index funds and why they should be the cornerstone of your portfolio.  The perils of picking ‘hot’ funds.  A warning that not all index funds are low cost and he also discusses a strategy to lower the costs if you are mainly invested in a limited-option 401k plan.

Chapter 7 – Asset allocation

This chapter starts off talking about the tradeoffs between bonds/stocks. Buying home country stocks vs international – currency risks.  He concludes that it’s better to have an asset allocation that is too conservative than too aggressive.  I agree!

Rebalancing is also covered as well as target date retirement funds.  It is mentioned that while the concept is great -the execution can be weak with managers using expensive funds. Check to make sure the asset allocation is in line with your desired allocation

Chapter 8 – Putting it all together

Mike goes over how to implement your asset allocation plan – which indexes are good ones to follow. Also includes a very simple sample portfolio. Watch your expenses!

Talks about some more differences between index funds and etfs. One thing that might have been mentioned here is that index funds transactions  can be easily automated whereas ETFs trades can’t be.  You can construct an extremely well diversified, low-cost portfolio using just a few index funds.

Chapter 9 – Think long term

He covers the importance of not being spooked by drops in the market or the financial media (ignore them).  Don’t look at your portfolio too often and don’t panic.  Conversely – if the markets are doing well – don’t be tempted to buy more stocks – stick to your plan.

Chapter 10 – How to find a good advisor

He says that most investors don’t need an investment advisor but there are situations where one might be required. Various types of advisor compensation are discussed. He makes a good point that the dreaded “commission” based advisor can be the cheapest option for a lot of people with smaller portfolios.

Chapter 11 – Automate your investing

If possible then set up automatic contributions via payroll options at work or with your investment company. Pay yourself first.

Chapter 12 – Beware the hot fund

Not unlike the hot stove – hot funds are just as dangerous. Keep in mind that hot funds (and stocks) are not likely to stay hot and there’s a good chance that it took on extra risk to get the eye-popping return.

Chapter 13 – Turn off the tv

Good advice in general – this basically says don’t watch the daily market performance.

Chapter 14 – Steer clear of stock-picking newsletters

Don’t buy stock pick suggestions from anyone.

Chapter 15 – Conclusion

Keep it simple.

To order this book:

Earlier today, I published a You Need a Budget review – budget software to help you organize your finances.  I have set up a special coupon code with YNAB so that if you want to purchase this software you can save 10% off the purchase price.

To get the discount just go to the You Need a Budget website and enter the coupon code:

fourpillars

That’s it!  Also, YNAB informed me that if you download the free trial you can get another coupon code for 10% (if you purchase with 48 hours) thereby saving a total of 20%.  The price of YNAB is $49.95 so after the 20% discount the cost will be $39.96.

If you do try the software – either from the free download or from a purchase then please let me know what you think of it.

In this post I’ll be reviewing the budgeting tool called “YNAB” which stands for “You Need a Budget”.  There are quite a few financial software tools available on the market such as Microsoft Money (discontinued) and Quicken, so it can be difficult to sort out which tools (if any) are right for you.  YNAB is a much smaller company and the software is quite different than the normal all-encompassing money management tools.

I do all my budgets and financial “stuff” on Excel spreadsheets but I’ve been thinking of getting some proper financial software.  I have regular bank accounts, a multitude of investment accounts and a small business.  I’m doing ok with Excel, I’m thinking that maybe I should upgrade.  I’ll be taking a look at various financial software starting with this one.

What is YNAB?

YNAB is a financial budgeting tool.  On the simplest level you enter your various transactions into the software and it helps you determine how much money you can allocate to various goals.  It also comes with a set of financial rules which are worth reading by themselves if you are learning the basics of financial management.  It works on the principal of “zero balance” so that all your income and expenses plus savings have to be reconciled each month.

Here are the 4 “YNAB” rules:

1. Give every dollar a job.   This isn’t an election campaign slogan – the idea is that if you don’t have a clear goal for each dollar then it will disappear (ie get spent on crap).  By assigning ALL your money to one function or the other, there should be less leakage of moola.
2. Save for a rainy day.  This is basically spreading out a future fixed cost over time so that you don’t get nailed with a large cost one month (ie annual insurance payment) that you might have forgotten about (or ignored).
3. Roll with the punches.  There is some important flexibilities build into the software so if you do have trouble in a particular month YNAB will make up for it the following month by reducing the budget.
4. Stop living paycheck to paycheck.  If you are currently living paycheck to paycheck then the software is designed to help you get ahead of your payments so that you have a bit of financial breathing room each month.

You can import data from the YNAB spreadsheet version (not supported anymore) or just start fresh.  It also accepts financial feeds from any bank.  I tried importing some data from my bank (CIBC) and it worked great.

Who is it for?

I think this tool is mainly for people who are working to get control of their finances and need a bit of help to get organized.  If you want to improve your finances and aren’t sure where to start, living paycheck to paycheck and/or trying to get out of major debt then you might want to consider this program.  It’s not just a budgeting tool…it’s a way of life.  🙂  Ok, that’s an exaggeration.  It really is more than just a financial tool though- it’s almost like a financial tool with an “improve your finances” philosophy built into it.

If you are someone who is at the point in life where you don’t need to track every expense in order to meet your financial goals then this software might not be as useful to you.  If your investments are the only thing you want to track then Quicken is probably a better bet.  Keep in mind however, that even if you don’t “need” to budget – it can help you achieve your goals quicker even if you are not in debt.  One of our goals is to pay off the mortgage and there is no doubt in my mind that we could achieve it faster with a stricter budget.

I won’t be buying this software because it doesn’t meet my current needs – there was a time when I was paying off debts when this software probably would have helped a lot.

I was impressed by the software itself – the original version of YNAB was Excel-based and I didn’t know what to expect with the new software but it is quite good.  The creators of this software are very passionate about debt reduction and financial management and it shows on the YNAB site.

How much does it cost?

The sticker price is $49.95 but I’ll be posting an offer later on today which will provide a big discount on this price.  Check out the “fourpillars” coupon code for big savings.

What doesn’t it do?

It won’t track investments so someone who is more asset-rich might not have as much use for this software.

Guarantee

Along with the 7 day free trial there is a 60 day guarantee on this software so you are pretty safe if you decide you don’t like it.

YNAB 3.0

In November there will be a major upgrade of this software, but don’t worry – if you end up purchasing the existing version (2.0) then you get a free upgrade to 3.0.

Free trial

You can do a 7 day trial if you are interested in checking out the software before buying.  Or if (like me) you just want to see what it looks like.  Basically you do the normal download and then at the end just click on the “7 day trial”.  There is no obligation and you don’t have to give any kind of information to do the trial run.

Here are the 4 different sections of the YNAB system and some screen prints so you can see what it looks like:

Register

Start by setting up your register – this is a list of all your transactions.  First step is to select a bank account or credit card/loan.  Then you enter the expenses/income etc within that account.  The register is set up like a spreadsheet where the different bank accounts are tabs along the top and you select each account/tab to see the details.

The register screen looks as follows – you can see I’ve set up two accounts by looking at the tabs at the top (checking and savings):  Click on the image to see the full-sized image.

You can import data from your bank account quite easily.  Just export the database from the online bank account interface and then import using YNAB.  I used the “Intuit Quicken” export option since that uses the same default file format as YNAB.  If you have set YNAB as the default application for financial downloads (it will ask you on installation) then YNAB will open up automatically with the new data.

Budget

Scheduler

Reports