The Truth: What Obama and McCain won’t tell you about your money

134 Comments

After watching the debate tonight, I figured I’d translate what both candidates were saying. Sorry I’m not as politically correct as them, but I hope this is informative.

Things will get a lot harder before they get better.
All the predictions about the recovery taking until “at least the end of the year” are horseshit. In truth, nobody knows, but it would be political suicide to admit that a recovery — whatever that means — will take a few more years. The truth is, nobody knows how long it will take. But if there’s one thing Americans love, it’s a leader pretending to know everything. And if there’s another, it’s that Americans love a quick fix…only to later complain about it not being done right.

Your questions about how “quickly” we can get out of this crisis are misguided.
Sometimes a forest needs to be cleaned out with fire before it can grow again. Again, an unpopular position. Since the government has virtually unlimited resources, it can certainly alleviate the pocketbook pain we’re feeling…but it will come back to bite us in the ass later.

Not all homeowners deserve to stay in their houses.
Renting is a perfectly reasonable alternative, but the idea of Americans “losing their houses” is politically untenable. Why? Because America perpetuates a mistaken culture of homeownership. Owning your own home is the kind of BS sacred cow that got us into this mess: Our parents tell us to buy a house. Our friends are impressed if we own a house in our twenties. The government literally encourages us to own a house by offering tax deductions. Homeownership is the American Dream!

The truth is, if you’re making the largest purchase of your life, you need more than a slogan — you need to take the responsibility to do some research. (And note that you can’t advocate for increased homeownership and also argue for Americans to keep their houses. By not reducing the prices, younger people cannot buy houses at these inflated prices.)

Yes, there was an exceptional amount of predatory lending.
For every blogger who argues loudly about personal responsibility, an angel dies and an Ogilvy executive lights a marshmallow in hell and eats a delicious snack. Wall Street and realtors are also to blame for this. But so are average Americans. It’s difficult to have a nuanced discussion about real estate on the campaign trail, so we resort to cartoonishly simplistic caricatures of things like Wall Street’s corruption. True — but also take a look in the mirror.

Homeowners are delusional about how much their houses are actually worth (see this, too).
As a wise commenter said, “I love the fact that it’s “acceptable/normal” for a home to increase its value by 100% during a five-year time frame, but it’s “unreasonable/impossible” for a home to decrease it’s value by 30-40% during a similar time frame.”

Taxes: Pandering to ordinary Americans instead of telling them to stop spending on stupid stuff
The reason Obama and McCain spent so much time talking about taxes is that most Americans are historically horrible at managing their spending. Since they make a fixed amount of money (revenue) and can control only one thing (costs), both politicans use tax breaks to pander to voters. Most people have never seriously thought about how to make more money. Fine. But what’s even more outrageous is Obama and McCain’s complete lack of honesty about what people really need to do to weather the economic crisis. Did you hear either one plainly say, “You’re going to need to buckle down and save more?” Of course not. You might as well walk into a Dave Ramsey seminar and argue that credit cards are a useful tool. It’s a suicidal suggestion. But it’s true.

Shut up about your money worries unless you’ve taken the time to read a book about how money really works
You need to read a couple of good books about money. Not read the screaming headlines of CNN.com. But a real book that explains how money works. If you don’t, do you really have the right to complain about how scared and nervous and worried you are about your money? (Note: If you want to get my favorite book recommendations, sign up for my free newsletter by Friday, 10/10/08. In fact, I’m giving away free personal-finance books in the upcoming weeks.)

Americans don’t know how to be frugal — yet
Things will get more expensive. Taxes will eventually go up. They have to. Costs of ordinary goods will go up. They always do. If you’re expecting it to get easier, you’re wrong. The key is to make more money and cut your costs. Sadly, Americans are poorly versed in being frugal. You think it makes sense to buy a new car every few years? You think it’s normal to eat out 5 times per week (lunch and dinner)? You feel good about yourself for ordering water when you go to a restaurant, but you blew $50,000 because you didn’t take the time to understand your mortgage? You’re not frugal. But a few more years of an economy like this and things just might change.

Sensible investors don’t change strategies very much — even in a market like today’s
With the market cratering hundreds of points every day — then climbing a similar amount the very next day — billions have been pulled out of the market. Yet long-term investors have the discipline to stay steady. Panicked spouses and overconfident investors think they know better by trying to time the market, but they’re wrong. In fact, here’s an excerpt from my upcoming book:

Recently, a group called Dimensional Funds studied the performance of the S&P 500 from January 1970 to December 2006, during which time the annualized return of the market was 11.1%. They also noted something amazing: Of those 36 years from 1970 to 1986, if you missed the 25 days when the stock market performed the best, your return would have dropped from 11.1% to 7.6%, a crippling difference.

Now, if only we could know the best investing days ahead of time.

Of course, we can’t. That’s why I continue to dollar-cost-average money into the market, slowly. Will it go down in the short-term? Almost certainly. But as my funds get cheaper and cheaper, I’ll pick up more and more shares. And eventually — over a 10, 20, or even 50-year time horizon, I’ll make a significant amount.

But encouraging people to continue investing during times like this wouldn’t be received well. More often than not, politicians need to seem to be doing something — ANYTHING!! — in order to keep you happy. Frankly, with a balanced portfolio, there’s really not much to change. But that’s not sexy enough to tell most people. (Plus, they have no idea what a balanced portfolio is.)

* * *

Sorry if I was too harsh. I’m usually not political, but I’m tired of the bullshit around our money. Every single one of us knows co-workers, family, or friends who are worried about their money. It’s time to get honest about what’s going on. (Want to read more? Check out my popular articles, personal-finance links, and my forum.)

More to come in future posts.

* * *

I’m trying something new: If you liked this, please digg this article.

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134 Comments

 
  1. Glad to see someone telling it like it is, rather than what people want to hear.

  2. [...] A rare article from “I Will Teach You To Be Rich”: Things will get a lot harder before they get better. [...]

  3. I live in Europe and one thing that always strikes me about Americans is their refreshing openness and optimism. The other side of the medal is a gullibility that is sometimes staggering to us (at least to me). Of course do politicians say the economy will do better soon, but I am surprised to see many Americans actually buying that. When this piece of theatre started last Fall, it reminded me of 2001, with its gradually worsing, but always too rosy, forecasts by politicians and analysts. I am having a déjà-vu ever since.

  4. [...] Sethi from the I Will Teach You To Be Rich blog just wrote a post, The Truth: What Obama and McCain wont tell you about your money, talking about some things that neither presidential candidate will tell the American people about [...]

  5. It’s a sad state of affairs when truth will kill a political campaign but lies and pandering will boost it. I know that’s the definition of politics but it still bothers me. I just want people to learn to think, but I guess that is too hard for most pepole these days.

    BTW, just recently found your blog, and so far I love it. Finally a straight shooter in a world of half-truths and lies.

  6. Bravo. It’s time for a dose of reality. Pandering baloney is what got us here. Who would have thought that giving a $700,000 mortgage to a gas station attendant was a bad idea?

  7. I agree that is time to tell people what is actually going on rather than trying to back-up what they are seeing in newspapers. That may make them feel smarter, but it won’t help them any.

  8. There is absolutely no reason why every American family should be able to afford to buy their own home. The current financial problems have arisen because the banks purposely created a credit society causing the price of everything to be unjustifiably inflated making it necessary to borrow to purchase most significant items.

    We must never forget that those Americans who make and grow things, no one else, create all the real wealth. It’s ironic that this group of people have to borrow to buy the things they made in the first place.

    A house can be built by a dozen building workers in a month, the cost of materials are roughly the same as the labor cost. So why should it take 30 years for one of the same building workers to pay for it. Moreover, don’t say it’s the cost of the land; this was inflated by the banks ‘credit society’ scheme.

    Forget all the details; the real problem with the financial system is that there are just too many people on the financial sector gravy train. The people who create all the real wealth just can’t support them all anymore.

    By all means sort out the whole sorry mess by bailing out the financial institutions, but be sure to make some radical changes to the system when the dust settles.

  9. This is exactly what I was thinking while I was watching the debate last night! They’re too afraid to tell Americans the truth because they’d lose too many votes. I especially liked it when Obama said that we (average) Americans have done our part cutting our expenses and he understands we’re upset about the bailout. I’m fairly certain the average American hasn’t truly cut their expenses to a prudent level given their particular incomes. But oh well, at least he makes us feel good about ourselves. Right? ;)

  10. You hit the nail on the head with this one

  11. Great post, Ramit. As always, you tell the truth and tell it straight-up

  12. Wiser words have not yet been spoken during this election cycle!

  13. Will you be my president??

    There are plenty of people who know this, but many more who don’t.

  14. Hot damn, great article. You just got yourself a new reader. :)

  15. Ramit, you’re right. Our culture is going to have to change. Most of us will probably turn into the penny-pinchers that the depression made out of most of our grandparents. I think we’ll be alright if we all just live beneath our means.

    I’m in college right now and everyday I thank my lucky stars my parents are frugal with their credit cards and are financially stable. They have always told me though that I was going to live with them until I got married and then buy a house with my wife. I would much rather rent on my own after college and the market right now reinforces my thoughts.

    On another note, I don’t know if I should get a credit card right now and start building my credit score. If anyone can give me some guidance as to which cards are the best for students and if I should given the market right now that would be great.

  16. [...] The Truth: What Obama and McCain won’t tell you about your money | I Will Teach You To Be Rich [...]

  17. If everyone were as frugal as you want them to be, we;d bein even worse trouble. If no one is buying goods and services, uneployment will rise, etc.

  18. Great post, Ramit. I unsubscribed a while ago but might re-subscribe if you have more posts like this!

  19. Well stated! This is the kind of stuff we need to be hearing from our “leaders” – leadership – not just what we wanna hear.

    And no, you weren’t too harsh – in fact you were not harsh enough :)

  20. I really like your article. It is straight and to the point. It puts what I have been thinking in a nice way.

    @Bob
    Our society has been everyone for themselves for quite awhile, I think being frugal for yourself is just fine. And I say this knowing I won’t have a job in two months.

  21. @Bob:

    Frugality requires spending within one’s means. Perhaps complete frugality could be defined as spending exactly at one’s level of necessity. But even 100% of people being 100% frugal is not going to put the grocery store out of business.

    I don’t recall Ramit or any other personal finance blogger recommending that people reduce their spending even to the level of necessity. Money allows us to sustain our basic animal needs, as well as to engage in recreation, but what they do advise is to spend only within your means and to save reasonably for your future.

  22. Great article, Ramit. My boyfriend and I are both in our early 30s and we have had serious talks about what it means to be frugal. While we are taking this seriously, saving more by not eating out, etc, our friends are still spending like crazy. They still don’t get it.

  23. [...] blog entry shows that the major American presidential candidates aren’t willing to reveal this sort of [...]

  24. [...] I haven’t had a chance to read much of what is posted, but I kinda liked the first article.  Check it out if you get a chance:  The Truth: What Obama and McCain won’t tell you about your money [...]

  25. You and most commentators still seem to have one big paradox left in your rhetoric:
    “Things will get a lot harder before they get better.”
    and
    “Panicked spouses and overconfident investors think they know better by trying to time the market, but they’re wrong.”

    don’t mix.

    either you know have a very good idea of what the market will do, or you don’t. Just think, if your 95% sure the market will will continue to get worse for another year, it makes sense to with hold your investing until near then. However, I think it’s more likely that your second point is more accurate than your first.

    In general however, the post is excellent.

  26. Ramit, with beliefs like these you could get elected to just about any office you’d run for.

  27. Also, as true as it may be, struggling Americans don’t want to feel lectured on saving and being frugal by a couple of millionaires (with one who is a very very multimillionaire). McCain did that earlier this year and was excoriated for it.

  28. Hey – owning a home is great if it is for you and you are not plain stupid. This is social/ financial, whatever you want to call it darwinism. I own a home…It is my third home in 5 years. I bought it last May. My lender approved me for twice what I paid for my home. I had enough sense to know in order to eat, pay bills, save and have a little fun we could not even come close to affording a house for the approval amount. Do you think I have any symapathy for the lenders and buyers who loaned and purchased homes for twice what they could really afford? Do they deserve my tax dollars to be saved? If you are too stupid to budget and understand what you can really afford then you are too stupid to have credit cards, car payments and a home. Furthermore, if you are a lender putting your eggs in “stupid baskets” you should be out of business.

  29. Bob – We need short-term pain in order to have long-term financial stability. Building an economy on a constant cycle of consumer debt and consumer spending is foolish and will just leader to a bigger disaster down the road.

    Time to rip up the credit cards, maintain our vehicles for 15+ years, save our money, work harder, learn more, etc… these things will help us a build the foundation for real economic prosperity and stability.

  30. “Recently, a group called Dimensional Funds studied the performance of the S&P 500 from January 1970 to December 2006, during which time the annualized return of the market was 11.1%”

    Hmmm … you read a study from a company that makes money when you invest your money with them that said it’s best for you to invest your money with them.

    Of course they don’t want you market timing! They don’t make money when you pull yours out of their funds.

    Better go run your own study. You sure won’t get 11.1% if you dollar cost average the S&P 500 from 1/1/70 to 12/31/06 the way most investors dollar cost average (i.e., $100/month).

  31. “They also noted something amazing: Of those 36 years from 1970 to 1986, if you missed the 25 days when the stock market performed the best, your return would have dropped from 11.1% to 7.6%, a crippling difference. ”

    I think that is an interesting statistic and a compelling piece of evidence to support buying-and-holding. That said, I wonder how you’d do if you missed the 25 days the market performed the worst?

  32. Great post. I agree 100%.

    One question, though. If Americans become more frugal, won’t that slow down our economy?

    I’ve been concerned in the past that our economy was being fueled by credit card purchases and tapping the home equity line. If those things stop, won’t that slow down the movement of cash through the economy?

  33. This is really informative and helpful. Thanks a lot for being the clear voice in the middle of all this frenzy flying around in the media.

  34. Nail on the head, Ramit. Testify!

  35. You should, at the very least, be the guest moderator for the 3rd debate. Fantastic post!

  36. A few people have been saying this for years….how the Realtors and the rest of the Real Estate industry have corrupted the American mindset to start thinking that homes are an “investment” instead of places to live.

    We don’t think about neighborhoods or communities anymore; it’s all about the value of our homes as compared with “the market”. Unless you’re fed these terms by realtors, the average person wouldn’t even think about speaking in terms like this.

    10 years ago, did the words “flipping a house” even part of the everyday American vernacular?

    But while everyone is blaming “Wall Street” for this current woe that we’re in, no one is taking a look at the REAL crooks in all this…the Realtors!! They told us to buy in, and buy in now. If we didn’t buy in, we were making the worse move ever. They bought for thier own inventory, spiked up the prices and then took in thier commissions. And when the houses foreclose, and the banks need to unload the foreclosed properties, guess who’ll sell them again and make yet another commission??

    Notice, there’s no one regulating the Real Estate industry. I know that if there had been regulation in the Real Estate industry in the first place, we wouldn’t even be in this mess.

  37. Music to my ears, thanks

  38. Great Blog! I don’t know though, perhaps if one of our hapless contenders for the Presidency would have enough courage to say what you wrote, he just might win. We’re tired of being lied to all the time.

    BTW, people have laughed at my being frugal for years, now they are asking for my advice!

  39. Equally destructive as the myth that everyone should own a home is the life strategy of living on a fixed income and “making do.” Certainly people should be frugal and live within their means. However, I believe that more people than currently do should be starting a side business, taking learning opportunities that can increase their earnings, and negotiating job and work arrangements that enable them to earn more income.

  40. I crapped my pants hard when I read this blog. It’s amazin’!!!

  41. [...] If I were to write about finance: The Truth: What Obama and McCain won’t tell you about your money. [...]

  42. Great post, and I agree with just about everything you said.

  43. You are right about saving and being frugal, but you didn’t mention that in a matter of 5 years, 10 years at the most, the US won’t be able to pay the interest on the national debt. In the mean time, the dollar’s value is rapidly decreasing due to the printing of more dollars and credit being pumped into the market. Investing in US markets in times like these isn’t received well because it’s stupid. You’d be investing in a currency that is sure to lose most of its value. Invest in commodities and precious metals. Those can’t be created out of thin air like dollars can.

  44. I agree with most of what you say, except that things will become more expensive. Deflation will make sure they won’t.

  45. I wish this was the sort of straight talk politicians actually used.

  46. I agree with you. Take a standard South Florida house: sold for $150,000 in 1996 and then a bank was dumb enough to give a $400,000 loan for the same house in 2002 to someone who made $45,000 in 1996 and $55,000 in 2002. If the banks were not giving out free money that house would have sold for $200,000 in 2002 and maybe $225,000 today. The same house might go for $200,000-$250,000 after sitting in foreclosure for a year or so. So basically, my tax dollars are paying for the $200,000 of “not real” money that was split among the original homeowner, the loan company and the real estate agents commission.

  47. [...] The Truth: What Obama and McCain Won’t Tell You About Your Money by Ramit Sethi [...]

  48. @Kevin H

    The problem is that NO ONE really knows what the market is going to do. If they did they would be FAR richer than Warren Buffet. If you pull out of stocks now you do two things: You turn paper losses into real losses and pay transaction fees.

    Just when do you get back in? If you get in too early do you jump out again, lose more and pay more transaction costs? Do you wait more until the recovery is “clear” and miss a big rally? I can believe that trying these strategies will cause you to miss a lot of the returns just as the study Ramit referenced claimed.

    -Rick Francis

  49. Any thoughts on the
    MCCain’s proposed Home Owner Bailout?

    The McCain Homeowner Resurgence Plan
    http://www.johnmccain.com/Informing/Issues/Read.aspx?guid=b9af0d4c-9c0e-4a97-b27f-19df8cfec83d

    This plan will reward people that took out bad loans and keep housing prices artificially high.

  50. Your’re right on with the exception of one point.

    If/when you “know” or have reasonably concluded, upon solid research, that the market is due for a major tumble, AND, you have factored in the commissions and other costs, CASH THE HELL OUT!!!

    I rode the market all the way up and did quite well. Then with plenty of time to avoid what was an obvious crash, I moved to cash positions. I’m now buying back in. I’ll come out miles ahead of those who stayed in.

    Kudos to your take on the R.E. market. These folks suddenly forgot their “flip” plan????!!!

    Let them eat cake! They rolled the dice and lost. I’m a very savvy R.E. investor. I made a killing in the Cali market, and again, sold before the bubble burst. If you got burned, live and learn, don’t cry for a bailout.

  51. Just some thoughts, Ramit:
    Good words, but there is real value in including actual numbers, RE: cost to you and I of the bailout_s_, both that of last week and surely many more stimulus packages to come. Can I avoid those taxes?
    Also, in my mind, you bring to mind tangential questions related to costs of doing present-business: After reading the economic tea leaves, might this be a good time to re-assess personal career development, the fruit of which drops several years away?

  52. “A house can be built by a dozen building workers in a month, the cost of materials are roughly the same as the labor cost. So why should it take 30 years for one of the same building workers to pay for it. Moreover, don’t say it’s the cost of the land; this was inflated by the banks ‘credit society’ scheme.”

    It’s not the house that is the bulk of the price, it’s the land. Here on L.I., People will buy property with a house on it, and knock down the house to build what they want.

  53. [...] an­d McCain­ didn­’t co­mmit l­ast n­igh­t. Th­e Tr­u­th­: Wh­at O­bama an­d Mc­C­ain­ wo&#173… [I­ Wi­ll Teac­h Yo­u­ To­ Be [...]

  54. [...] The Truth: What Obama and McCain won’t tell you about your money | I Will Teach You To Be Rich (tags: tips investing financial finances economy lifehacks personal money) [...]

  55. Excellent article, you obviously know your economics.

    Here’s another man who has predicted this and knows what’s up who has been consistently ignored in the past but is now being asked for interviews all over the place:

    Ron Paul

  56. Spoken like a true intellect. This is an excellent, no b.s. article.

  57. I’m forwarding this to all my friends.. I’ve been trying to explain some things to them, but they need to hear it from someone else – and you are a perfect example of bold truth.

    Great job.

  58. Too much of unrestrained capitalism is to be blamed.
    As a shopkeeper looking for more profits, its natural for me to go for cheaper manufacturing bases, at the huge cost of making my own people jobless. In the long run, my customers lose the ability to buy what I sell, no matter how cheap the items are.

    [cheap = less expensive]

  59. Not bad, but DFA’s report neglects something. If I missed the best 25 days, I might also have missed the worst 25 days. Or maybe I only missed the worst 20 days. That changes the dynamic.

    I’m not suggesting that anyone try to time the market, the point is that DFA has a dog in this fight… don’t accept their reports at face value.

  60. PUUUUUULEASE!!!

    You have most of it down pat, I’ll give you that.

    However,

    Dollar cost averaging (DCA) is a horrible investment strategy. Especially when you’re buying mutual funds or “something” in your 401K, 457B or 403B plan. It stinks to high heaven.

    Prior to the downturn, a monkey could make money in the market. EVERYONE makes money when the stock market goes up, up, up. In that situation, you’re better off buying an index you like (via ETF or actual stock purchases) rather than a mutual fund or other “professionally” managed vehicle. After all, the “professionals” are the idiots that bought into the perpetual market machine.

    Ask the retiree’s that have retired in the last 5 years how they are doing with their “investments”. Look at the S&P 500 for gosh sakes, we’ve lost an ENTIRE decade of “gains.” Ask Japan how yen cost averaging is working out for “Mr. and Ms. Wantabe” over the last 15 years.

    I posit that if you are unwilling to research and invest accordingly, you are better off just saving cold hard cash. Dollar-cost-averaging is a suckers bet. Mark your contributions to the actual market and you’ll see that only in a bull market does DCA actually work.

    Unfortunately for your 401K, markets have cycles and the downward movement absolutely decimates DCA’s ability to provide meaningful long term gains. Hell, the DCA movement hasn’t even really had a chance to prove itself as a viable option, its only been in “exit-stance” since 1982/83

    History will prove that;

    Dollar-cost-averaging = Flipping houses

  61. I’ve been talking about the benefits of renting relative to owning for years. Here are 14 of my blog posts on the subject: http://thinkingonthemargin.blogspot.com/search/label/renting

  62. Some of you guys just don’t seem to be getting it. You are so enmeshed in the credit society you are unable or unwilling to see the underlying fraud that props the whole system up.

    The banks created the credit society hundreds of years ago as a way of carving out a place for themselves in a society where they are unable to create any real wealth.

    The cost of everything, not just houses, is determined not by what it’s worth but what it can be sold for. If there was no credit available the created wealth would simply buy back the things made during the wealth creation process. As soon as credit is introduced into the equation, people can ‘afford’ to pay more. It then becomes a competition for goods based on credit worthiness rather than intrinsic wealth.

    Don’t get me wrong, I’m not advocating the abolition of credit. Credit availability backed by deposited reserves would work; those who have surplus cash merely transfer it via banks to those who have a need for it. The depositor makes a little bit and the banks make a little bit. In other words, credit banking with a fractional reserve ratio of 0%.

    Where the whole system moves into the realms of unreality is when the banks create money out of thin air. The amount lent out by the banks as a ratio of reserves can legally (in the USA), be eased up to a point where there is 10 times more money lent out than is held on reserve.

    With so much ‘funny money’ credit in the system, it’s inevitable that the price of everything is going to go up thus reinforcing the need for a system of inflated credit.

    Such a system is like a coiled spring, its built on falsity, the banks while dealing legally, are in my opinion dealing immorally. It’s only the power of the financial institutions that has ‘persuaded’ the Governments of the world to accept ‘fractional reserve banking’ as being normal. A ‘Credit Crunch’ was inevitable.

    Finally, just one statistic for USA readers, since this is an election year. There are roughly 110,000,000 families in the USA, so ponder on the fact that the seven hundred thousand million dollar bailout of the financial institutions in your country is $6,363 per family.

    Footnote: Definition of recession. A time when the amount of available credit reduces drastically and the price of goods (including houses) revert to their real value. Problem?

  63. On investing in the market via dollar cost averaging, you say: “over a 10, 20, or even 50-year time horizon, I’ll make a significant amount.”

    Your certainty scares me. This kind of thinking is exactly what got us into the mortgage and credit mess. Who says things in future will be as in the past? Nobody knows what will happen, whether it’s long or short term.

    I could point to lots of things that could go wrong over the next half century. The most obvious one is energy – the past 2 centuries of economic growth have been built on cheap energy. Now, for the first time in human history, we are starting to feel the pinch in terms of fossil fuel reserves.

    Will we make an orderly transition to renewables? Maybe. Hopefully. But it’s far from certain. And if we don’t, expect a massive global systemic upset. Think I sound crazy? If I’d told you a year ago that within 12 months all 5 big investment banks would be gone, you’d have said the same thing.

    Sure, put something in the stock market. There’s a good chance it will grow in the long term. I’m 32 years old, and have about 20% there. Another 15% in corporate bonds. But the majority of my assets – 65% – are in cold hard cash, diversified over a number of different currencies, in banks in 4 different countries.

    I know that even this isn’t really a guarantee, since inflation is the easy way out for overextended governments. But I’m safer than most.

  64. Nice to see that we all don’t believe that either of them can actually come in and save the day – they can both just work really hard at trying to make it better, no one wants to hear false promises but also don’t want to be treated as though we cannot see the bigger picture.

  65. You are correct, the debate was horrible, but then much of it was thanks to the horrible format of it, not allowing real answers or real discussion.
    Obama at least is more honest and straightforward in a recent interview (I hope posting this isn’t too much like an election ad, but if McCain says similar things I’m gladly posting them too):
    http://www.abcnews.go.com/Politics/story?id=5985527&page=1

    “Part of the problem here is that the average person has seen their wages and their incomes going down. And they were relying on the hope that their home prices would continually go up. So that was the asset that was going to help fund college, help fund retirement. And that was unrealistic.”

    ” I mean, if you think about previous crises — you know, FDR. There were a whole bunch of programs that he tried that didn’t work. But what he was able to provide to people was a sense that somebody’s in charge and we’re going to get through this.

    And — and that is as important as anything. And the fact that, if you’ve seen President Bush come out of the Rose Garden for two minutes at a time and, you know, not give a clear sense of what is taking place, describing this — describing this rescue package as — seeing it described as a bailout where the average person still thinks that what’s happening is $700 billion is going out the door, and we’re never going to see it again, and it’s going to a bunch of Wall Street types. ”

    “the next president is going to have to be straight with the American people and say, we’ve got some big challenges. It’s not going to be easy. We’re not going to dig ourselves out of this situation overnight. But if we make a series of smart steps, if we’re willing to prioritize, if we’re willing to stop doing things that we don’t need to do and just focus on the things that we have to do in order to get this economy right — and that includes making some tough budgets choices — then I have no doubt that America’s going to be strong once again.

    But it’s going to require that kind of honesty with the American people and the ability to inspire the American people to remind them of what is great about this country. And that’s something that we haven’t heard a lot over the last several years. “

  66. I didn’t know that so many experts read your blog and posted comments. Reading some of these are pretty entertaining. It just reinforces something I noticed awhile ago. Most people convince themselves of whatever they want to believe. If they aren’t actively seeking advice on something, there is no point in giving it to them, because they’ve made up their mind. I’ve also noticed that people like to talk about how much they know. Good stuff.

  67. [...] The Truth: What Obama and McCain won’t tell you about your money | I Will Teach You To Be Rich [...]

  68. This graph from the NYT sums it up nicely. Housing prices are WAY, WAY above historical averages. They MUST come down. Any attempts to artificially prop them up screws younger people and renters, and is just TOTALLY the wrong approach.

    http://www.escapefromthecube.com/images/irrational.gif

  69. [...] A Long Hard Slog A lot of nonsense gets written during times of financial turmoil. These times are no exception. Vernon Smith, however, has some sensible things to say. To summarize his view, we’re probably in for a long hard slog and the odds of government actions actually fixing things are rather long. You’d better get used to it because this could be the new normal. So what’s a person to do? I suggest changing attitudes and behavior. I found an excellent place to start. [...]

  70. [...] The Truth: What Obama and McCain won’t tell you about your money at I Will Teach You To Be Rich (via LifeHacker) :: good stuff, esp. "Taxes: Pandering to ordinary Americans instead of telling them to stop spending on stupid stuff" [...]

  71. Great, Ramsey would love it!!!!!!!! And I did too!!!

  72. Hi,

    I love the article. I am one of those who likes truth be told, no matter how harsh it is…I really enjoy your posts.

    I do have a question for you Ramit. If you were in the market to buy a car & you have a trade-in valued at least 7000$ & close to enough cash to pay for most of the car in cash, would you do that & go for a very short tem loan or if you have a good credit score, not put down more than 20% & finance at a good rate instead? Btw what in these days is a good rate for car finance…I am not sure..

    My husband is thinking of getting a car as his current car is giving lot of problems & we are in a dilemma.

    Thanks for your advice in advance.

    Shemanti

  73. *Things will get a lot harder before they get better.*

    This resonated with me. I’ve been telling people this for the last few years, and everyone fights me on it. “No way, we’ve hit bottom” they say. Or, “my broker told me now is the BEST time to buy”, or “All the articles in the paper say now is the time to buy a house!”

    I feel bad for these people, because they’re the same people who sheepishly follow whatever politicians and news agencies preach. They’re followers, and they have no capacity to think for their own. This may never change, and it’s like watching people choke themselves.

    We definitely have a long road ahead of us. If you look at history, over the last 200 years, you will see that most real estate bubbles took a decade to pop and recover, not *2 years* like some of these others are continually saying. Some people say that 200 years is too much data. But we look at all that data for population, wildlife, urban growth, stock market, wars, etc. Why isn’t it sufficient for measuring estimated bubble-burst recovery?

    It’s because people hate being called out as wrong, and they want to slow this whole process down, rather than allow it to happen quickly. I write about this stuff when I have the opportunity.

    Keep up the great work. I have you subscribed in my syndication reader, and look forward to reading and responding to every juicy morsel.

    Kevin

  74. Ah, the sweet smell of truth.

  75. If only our so-called leaders could and would communicate this wise, simple message you’ve given us today.

  76. You are wise beyond your years. I cringe at each debate when each of the candidates competes to give voters another handout. Most of Americans are not stupid. There are real costs associated with every proposal. McCain’s proposal to bail out homeowners who are in trouble would only cost another couple hundred billion on top of the bailout costs, but he doesn’t mention that it is the working class who will have to foot the bill.

    As for homeownership, I have been a real estate broker for over 30 years. I agree completely with your analysis. There are scads of folks to blame for our mess. Realtors, Lenders, appraisers, banks, mortgage brokers, and yes, the homeowners themselves (who dreamed of making easy money with their homes.. if only home prices kept going up and up and up and up and up). The big boys are the easy targets, but it could not have happened without the buying public’s consent.

    Most Americans seem driven for a quick fix, a fast profit, an easy solution. Their tolerance for discomfort, much less pain, is famously short. It’s time that we all face the music, buckle down and do our part to solve some very serious issues facing us.

  77. Gaurav here…Ramit this is an excellent post. I agree with you, the investor that wins is the one that has the long-term strategy, market timing only works for the elite 1% of the country.

    I like your line about Dave Ramsey…saving and staying within your means is the only way to prosper.

  78. @Mike – you contend that dollar cost averaging is a suckers bet that only works in bull markets. I disagree. The only time DCA doesn’t work is if your investment period only includes a bull market. For this reason investing in stocks is not a good idea for short terms, say less than 10 years.

    Retirees should have a large % of their investments in bonds/cash, so that they can withstand a bear market. If they are 100% in stocks they are getting VERY POOR financial advice. It’s too late to reallocate now and they may need to go back to work longer because of their poor investment choices.

    Even young investors that are primarily invested in stocks should diversify among different categories of stocks such as foreign/domestic as well as large/small cap. Every portfolio should be periodically rebalanced so that the percentages don’t drift from their targets. For example in a bull market your portfolio will end up with too much in stocks. Rebalancing forces you to buy low and sell high. Unless you really have a way to accurately predict the future attempting to time the market is likely to cause buying high and selling low!

    Do you believe that this downturn will be worldwide and last forever? If so society as we know it will crumble and I would be far more concerned about surviving than about how your investments are doing. I don’t think the subprime crisis is enough to destroy the world so I’m going to keep investing, and for lack of a crystal ball I’m going to accept dollar cost averaging and rebalancing as the best alternative.

    -Rick Francis

  79. Rick -

    ROFLMAO. Do you even know what the bond market is? Are you aware that right now the bond market is perilously close to a SEVERE dislocation? The fact that you think this is a sub-prime problem is almost enough to not warrant a response.

    However,

    You are posting the same tripe that “professional” money managers spew. It stinks. There is no transparency in the market. The fact that you call it investing is ridiculous.

    Retirees are screwed. The market has another 25% (at least) or MORE ahead. Unless the games stop. Buy games I mean;

    1) The Shadow $64 trillion CDS market is exposed
    2) All level 3 assets are Marked to market
    3) The people behind this are put in jail
    4) the ESSA is rescinded, as its is money we DO NOT HAVE

    Go to http://www.tickerforum.org and post about how “awesome” DCA is. Post about how this is just a silly subprime problem. Post some links to the “professional” analysts like Cramer and Kudlow. I double dog dare you… LOL.

    Then answer this; how long has DCA been “in play” as an investment strategy? It was sold to Joe Six Pack as a way to invest without due diligence. That is contrary to “investing” in anything.

    Why would I give my money to some pig on wall st. when I can do the same thing if I invest a bit of time and energy? I’m no professional, but I have made money in this market. Unlike my buddies who have lost more than half of their 401K’s. They foolish think that money will be back…. its gone.

    You want to know how this story ends? Look at Japan and/or Argentina, Zimbabwe, Weinmar Germany. Unlike Japan our people are broke, so that will be a nasty little twist. And hopefully our government decides to punish those who committed crimes instead of Hyperinflation ala Zimbabwe or Argentina.

    One more thing, quit repeating the stink “professional-i-want-your-money” manager line that no one can predict the future. Of course you can’t, but you sure as heck can position and hedge for just about anything if your willing to put in the time and effort.

    Go read; Roubini, Mish Shedlock, Barry Ritholtz, Calaculated risk, and all the financial blogs. Stop reading and watching the MSM (CNBC) and the other idiots on TV and in the papers… here is a hint; they don’t know what the bond market is either.

  80. [...] is a good article over at http://www.iwillteachyoutoberich.com discussing the debates held at Belmont University on October 7th. After watching the debate [...]

  81. Great comments, everyone. To Mike: First of all, you seem a little kooky. Second, history is a better predictor than your wild guesses about “shadow markets” and “severe dislocations.” If you’re convinced that the world is going down, then you’re welcome to use whatever mystical techniques you use to make money (what were those techniques, again?). But please don’t criticize others for using dollar-cost averaging, a strategy that has worked for decades.

  82. Ramit -
    This is your play ground. Kooky, sure … The fact that you don’t don’t know what a Credit Default Swap is doesn’t invalidate what I’ve said. Or the fact that lending at 4.5% prime rate when your borrowing cost is at best 4.52% causing a complete freeze up in the credit and bond markets doesn’t invalidate what I’ve said.

    DCA has only been in exsistance since the 401K, 457B and 403B plans have been around. It is NOT proven. Ask the current crop of retiree’s how DCA is working out for them. I don’t think you’ll like the answers.

    My techniques; read, chart, buy, sell. Save CASH.

    Go to tickerforum.org and ask about DCA, seriously… you’ll be laughed out of the room. I posit that if you are unwilling to actively “invest”, you are better off by saving cash and parking it in a CD.

  83. [...] Teach You to be Rich. He didn’t hear either candidate tell the truth about the economy, so he translated the campaign speak: All the predictions about the recovery taking until “at least the end of the [...]

  84. Read, chart, buy, sell. RCBS? HOLY SHIT, I see the light now. You should really quit posting and start doing more RCBS. I’d imagine that’s a more valuable use of your time.

  85. [...] The Truth: What Obama and McCain won’t tell you about your money | I Will Teach You To Be Rich After watching the debate tonight, I figured I’d translate what both candidates were saying. Sorry I’m not as politically correct as them, but I hope this is informative. (tags: tips politics political obama money mccain investing lifehacks recession) This entry was written by The Prophet King, posted on October 10, 2008 at 2:01 am, filed under links. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL. « this and that for 2008-10-08 [...]

  86. Love your posts, but… please nix the references to the Dimensional Advisors study, it’s just plain silly. If someone were to withdraw their money from the market, why would they miss only the 25 best days? This is exceptionally silly, considering that the the best days are usually in temporal proximity to the worst days on the market. So someone who missed the best days is also likely to miss many of the worst days.

  87. I actually think Mike has some merit, I wouldn’t blow him off to entirely. Sure, perhaps he’s a little “kooky”, but what he says about DCA is actually not too far off. And his strategy to “read, chart, buy, sell, and save cash” is actually quite spot on for this current environment.

    -Kevin

  88. Small world…you were quoted by someone I know….thought you’d get a kick out of this…

    http://moriarty6.livejournal.com/164197.html

    Hope all is well…one day…when we’re both not so busy with life…let’s get together and say hello.

  89. It’s such a breath of fresh air to read something about this financial mess that doesn’t sugarcoat the problem with fairytale endings and “quick fix” recommendations. I’m a BIG fan of your style…I will absolutely be back! Keep up the good work!

  90. @Mike:

    Dollar-cost averaging only works during a bull market, huh?

    How about this:

    If you had invested $1,000/year in the Dow at the BEGINNING of 1929 every year until 1938 (the time period of the Great Depression), you would have ended UP 6%. The Dow was down 57% over that same 10 year period.

    Dollar-cost averaging just doesn’t work, does it?

    :-P

  91. Mike, you will never convince these folks of the error of their thinking. They are true believers! Folks, we have two generations of the save, invest in mutual funds (DCA), pay down your mortgage advice. And the results are we have less than 10% of retirees that don’t depend upon the government, a defined benefit pension or friends and family for their retirement income. The next generation of retirees will, for the most part, not have the defined benefit pensions. That is when we will truly see the problems of this strategy.

    Diversification is a way to reduce risk, which means it reduces variance and it reduces potential rates of return.
    Why don’t you tell folks about what the Dalbar, Inc. studies (it mimics almost all of the studies) have shown individual investors have actually received from their mutual funds?
    Hint, it isn’t 11%!

    Put in a whole decade of no gains in your retirement calculators and tell me what it does to your future retirement plans!

  92. This whole conversation about the pros and cons of dollar cost averaging is ridiculous to me! ANY strategy that you blindly follow will result in financial failure.

  93. @ Dave – Thanks man, it is tiresome… but it is super fun to really know how things work, while seeing the same myths repeated and repeated some more.

    @ Paul – ROFLMAO. Thank you, I really needed that good laugh. Stop using averages and mark invested dollars to the dynamic day to day changes in the market, it will radically change your view of DCA. You may need to Google; mark to market. However, you are probably invested in a (solid, strong, no-load (sarcasm)) mutual fund where you aren’t even privileged to see what your “manager” has purchased and at what price.

    Furthermore, the wonderful SEC (more sarcasm) and CONgress have made the mutual funds even less transparent than that. They (M. funds) can scalp percentages of the “earnings” to cover salaries, bonuses and admin costs and THEY DON’T HAVE TO TELL YOU. Mutual funds will be exposed as one of the biggest ponzi schemes in the world. Just wait until the dust settles in this quagmire…

    Anyone else want to take a shot?

  94. Honestly? There is no reason the vast majority of Americans shouldn’t be able to afford their own homes. The trouble is they all want to buy homes in “good” or “popular” neighborhoods. I have access to the MLS in Columbus, Ohio by way of a buyers’ agency website (real estate agents, but they represent buyers), and you would not believe how cheap some houses are out there. Even if you borrowed only the amount you needed to buy the house and get it stable–nothing cosmetic, just making sure the foundation is sound, the wiring and plumbing are good, and the roof is watertight–you will have a mortgage for maybe a third of the average Midwestern suburban home.

    Nobody wants to do that. Nobody wants to work. Everybody wants something handed to them. It makes me nuts because if I hadn’t squandered my own finances all through my twenties I could do this now, my daughter and I would have a house and that would be the end of it.

    The other piece of it is that nobody wants to make sure good public services are available in those “bad” neighborhoods. If a cop does something bad, he gets sent to the “ghetto.” The end result is that the decent people (black and white) who live in those neighborhoods are constantly at the mercy of gangs. If we could get this one obstacle dealt with, people could live anywhere they wanted and be reasonably sure they would be safe (there is no absolute guarantee of that, of course, not even in a rich neighborhood). But nobody wants to spend money on “those people.”

    So I would say it is a double whammy of Americans not being frugal enough and Americans being snobby. And I tell ya, we have nothing to be snobby about.

  95. Amazing blog post! Get’s you thinking!

  96. “First of all, you seem a little kooky.”
    This is why I read your site. That was a good laugh.

  97. Ramit, you seem overly assured with the peachy keen outlook for America. I disagree with dollar cost averaging, What if 40 years ago you had done that with ford, gm, and airline stock? I think you’d be losing your shirt. Those were at one times very very profitable companies, but now not so much, and they probably never will be as profitable as they were and probably will never raise back up to the value they once had.

    The facts are that from 1928 to the mid 1980′s the dow jones industrial average traded between 50 and 2000.00. Only in recent history has it broken through and stayed above. Who knows, maybe it will return to those levels?

    Before you teach people how to be rich, shouldn’t you be rich yourself? If you’re startup ever goes public, you might be, however your cockiness makes it tough to read your blog sometimes.

  98. Oh, good God. Yet another recent college graduate who thinks he knows it all. I agree with Richard Spicer’s comment, and then some.

    While there IS some value in what you say, it’s likely going to be lost on anyone over the age of 30, and/or with 2 living brain cells. Sorry, those of us who have been around a while aren’t going to be “ohhhh-ing and ahhhh-ing” over some brash kid who thinks HE has the answer to everyone’s financial woes. Yaaaa, riiiiight.

    The concept that Americans or any other culture don’t “deserve” to own homes is absolutely ludicrous. It’s not the ownership that should be in question, but the price. A home can cost millions, but it can also cost as little as $4,000.

    Living within ones means is THE KEY. Duhhh! THAT is the problem, not home ownership!

    Renting is a financially smart option if you get transferred often or don’t like “the commitment” that purchasing a home requires, but it’s certainly NOT the way to go for a lot of us, nor is it a good financial strategy for many of us.

    When you rent, you’re living in someone else’s home, basically. You can’t paint, you can’t remodel, you can’t plant a garden…you don’t really put down “roots” (virtual and literal). There are areas of the country, like mine, where renting has ALWAYS been more expensive than owning a home. Factor in that renting is simply throwing money away, and the tax benefits of ownership, not to mention the PRIVACY issue of renting vs owning…

    I’d say it’s time you pull your head out of your *ss, and step into the REAL world, son. I hope you’re still blogging when you get taken down a notch. Then you’ll see what it’s REALLY like to be a grown up, facing hard economic times.

  99. I agree. America’s biggest problem has always been learning the tough philosophies that change entire perspectives. Our financial situation is a result of the practice of bad financial philosophies, individually and nationally.

    http://www.mefinanciallyfree.blogspot.com

  100. It cracks me up that someone with the handle of “A Fed-Up Homeowner” devoted an entire post to describing the benefits of owning a home as opposed to renting.

    @A Fed-up Homeowner: “Factor in that renting is simply throwing money away…”

    I call BS on that. Buying an irrationally overpriced home that one cannot afford and trying to pay for it with an ARM or interest only loan is throwing one’s money away. Especially when all is said and done and the owner ends up short selling or in a foreclosure situation. Alternatively, I see renting as an opportunity to pile up on cash and let the real estate prices drop back down to earth.

  101. I didn’t know that buying a house was status symbol. Here, in India it is the first thing to do after you get a decent regular job.

  102. I’m with you on the pandering. Reminds me of that scene in Cool Hand Luke where the boss is telling Luke that the chains are for his own good, and Luke says, “I wish you’d stop being so good to me, Cap’m!”

    No one wants to hear that they need to cut back and learn to save and manage their money.

  103. for the most part, if you were renting for the previous 5 years you were saving money as the prices were unrealistically high. I read a statistic in my local paper that said from 1990 to 2000 people were buying houses that were between 3 and 5 times their annual salary. From 2001-2006 people were buying houses between 7 and 9 times their annual salary. That is a huge difference. If that’s all you had to choose from, renting saved you a ton. Where I live now, buying a house made sense so i bought one. I got the bastard for 86 dollars a sq foot. Buying made sense, it doesn’t always, and nothing is right for everyone. Common sense is what we all need. For many years people thought that the housing market was driven by the job market and that as long as people had jobs people bought houses, but I think we all learned that the housing market can also be driven by easy access to credit. Hardly anyone had the common sense to see what was going on, and instead got sucked into lemming mode and followed each other off the cliffs. this is exactly what I blog about trying to escape. This lemming mentality we all have.

    I don’t think the fed up homeowner was fed up at owning his house, I think the fed up home owner was fed up at cocky know it all college graduates.

    I’m watching the djia right now, and it’s surging over 400 points. my dad and I talked about it last night, apparently before the crash back in ’29 the dow went down 15 percent in the month leading up to it, regained half of it and then we had the big crash. We’ve lost 20% in two weeks, and about 35-40% off it’s highs, we’ll see what happens. Throwing money you don’t have at a problem won’t fix it, and as far as Dollar Cost Averaging goes, even if that were my strategy I’d be taking my money out right now, going to cash and sitting this baby out for the next 3 years, until everything stabilizes. It’s easy for me to say that though, I’m 22 and I haven’t really got anything in the retirement account yet, and I’m still working on rebuilding the savings after getting married and buying a house… so I’ve really got nothing to lose at this point. I really feel terrible for the people who are 50 or 60 and thought they could retire in the next few years and are waking up to a devastating reality that perhaps they’ll never be able to.

  104. @Dave Shafer:

    Good for you for reading the Dalbar studies, but it’d help if you’d correctly understand the reasons behind their results. The reason people don’t get the same return as the mutual funds they invest in is because they do STUPID stuff. They sell low and buy high. They get nervous and emotional (anyone seeing this happening now?) and they make illogical decisions. That’s what causes investors to receive returns that are below the actual returns of the mutual funds.

    You could have invested in Berkshire Hathaway from the beginning, but if you kept selling low and buying high you wouldn’t get the same return as if you had just held the shares and sat on your hands.

  105. Paul, it is obvious that you don’t know how mutual funds work. I suggest you read up. You are losing credibility.

  106. @Mike

    Enlighten us, oh venerable guru of all knowledge. And actually back up your statements with facts and examples…not just your rants.

  107. Paul… come on man.

    You can’t truly buy low and sell high when you DCA into a mutual fund. Its damn near impossible unless you get daily updates. For starters you have to answer these questions; Which shares did you buy or sell? And what is the basis (cost) of the shares you sold or bought? Are you going to use the single or double-category method for average rules?

    How will you know the basis costs of the shares unless you get a daily update from the fund on the day you make the purchase. I’ve never seen such a thing being offered. Please quit treating DCA and mutual funds like stocks… they aren’t even in the same family.

  108. [...] rest of Sethi’s list of political suicides Obama and McCain didn’t commit last night. The Truth: What Obama and McCain won’t tell you about your money [I Will Teach You To Be [...]

  109. Hey, Ramit -
    Thanks for the decent writing. There’s not much to disagree with when you scold ‘us’ for spending beyond our means. The run-ups in housing have been beyond unrealistic. However, i just read this post at Slate (http://www.slate.com/id/2201641) which lays much of the blame on the bad lending practices of the large financial instutions in their highly leveraged lending outside of the mortgage markets, ie. for leveraged buyouts and other corporate lending – and, of course, the repackaging of risky lending of all sorts to defray that risk – all played their role in this problem, not just home buyers’ tastes being bigger than their wallets.

    I don’t have precise numbers to bandy about at my fingertips, but I have heard it said by financial pros that the fundamentals right now are not so far out of whack. I don’t know if the numbers of defaulting mortgages is all that large relative to steadier times or to the overall market. Correction is good, no doubt, but as far as home loans go, this seems almost as much a crisis of faith as of actual defaults.

    I ramble. I’m less interested in what folks think of my own paltry reasoning than the response to Daniel Gross’ column on Slate. Have at.

    And thanks!

  110. Mike,

    I don’t know why I’m bothering any more, but I’ll respond anyway.

    First, no one can always buy low and sell high. My point about people investing in mutual funds who get lower returns than they should had to do with investor behavior. People tend to start buying when stocks (or mutual funds, which do hold stocks) have done really well. For instance, in the late 90′s during the Tech bubble. Then they sell when stocks start performing poorly because they’re worried they’re going to lose all their money. For instance, selling in 2002 when the market bottomed out. Then they wait too long to get back in because they’re still scared. That’s how they buy high and sell low. It doesn’t matter if you’re buying a stock or a mutual fund, if you let your emotions rule your decisions then you’re going to get worse returns than you should.

    I have known plenty of rich people who have invested in mutual funds and received the same returns as the mutual funds. They don’t try to time the market by buying and selling when they think the time is right. They invest their money and hold tight.

    However, I know none of this is going to matter to you. I’m just trying to give those who don’t know better than to listen to your tripe the chance to hear the other side of the story (and the truth…).

  111. [...] over at I Will Teach You To Be Rich, showed some serious clarity in his post, ‘The Truth: What Obama and McCain won’t tell you about your money’.  You should give it a look because, frankly, I’m in doubt about the possibility of either [...]

  112. Dollar cost averaging is an OK strategy, great for those who are not very active with the market trends. Better strategy: Stay short, or cash during bear markets, and go long during bull markets.

    In this way, you avoid loosing money from 1970 to 2006, AND you will have profited from those big 25 days you speak of.

    How do you know a bull from a bear market?

    Technical analysis… a very quick answer… if the 50ma is below the 200 ma = BEAR MARKET

    if 50ma above 200 ma and increasing = BULL MARKET

    – Technical analysis would have profited you over 1000% from 1970 – 2006 by following that simple rule.

    Period.

  113. [...] The Truth: What Obama and McCain Won’t Tell You About Your Money by Ramit at I Will Teach You To Be Rich [...]

  114. @Anar:

    A profit of 1000% over 1970-2006? That doesn’t sound very good to me.

    If you had invested $1,000 in a diversified, tax-efficient, index portfolio of 70% stocks and 30% bonds in 1970, you would have had $56,079 in 2006 (assuming you rebalanced annually). That’s a profit of 5,508%, or an annualized return of about 11.5% each year.

    A 100% stock portfolio would have been even better. You would have ended up with $81,096 in 2006 — a profit of 8,010% or an annualized return of about 12.6% each year.

    Sounds like a better deal to me…

  115. [...] over on the “I will Teach you to be Rich” blog has an excellent post about what is not being said about the economy.  He focuses on the two presidential candidates.  (He wrote it after one of the [...]

  116. Dollar cost averaging is not a good idea. Don’t ever listen to anyone touting buy and hold for 30 years or adjust once a year or twice a year. NO. Here is my argument with a very very important picture at the end!

    Simple example…. The dollar cost averaging strategy that if applied during the dot com bubble would still have you in the negative territory…. the NASDAQ has never returned to its highs…. much less majority of those companies stock prices… have you guys seen QCOM at $800 recently?? I haven’t and if you dollar cost averaged as it fell to 400, 200, 100, 50… that would be a HUGE mistake…

    Ramit has a great blog, and a great following, he can make some great contributions to peoples lives (my goal) !! I want Ramit to take some more research and time with investing strategies…. Great investment strategies save people a lot of money…. more than many other tips you will ever find!!!

    Small example… by telling my parents to move their 401k into ALL MoneyMarket funds and GinnieMae funds at the end of August I have saved them over 15% of their entire portfolio !!!!! IN LESS THAN 3 months…. Imagine how long it would take to gain 15%… well by Ramit’s averages > 1 year…. Was it by luck that I had this advice??? No, great investment strategies come from great time and research and understanding of TECHNICAL as well as Fundamental Analysis. Please see my last point below to give you the MOST IMPORTANT MESSAGE!

    Finally I want to leave everyone with a bigger picture of the Dow Jones from 1929 to present Adjusted for Inflation ….. I urge everyone to pay attention here….
    Link to picture: http://tinyurl.com/5vac4f

    Key Points:
    (1) Dow is now less than double where it was in 1929
    (2) Dow trades a mere 29% above its 1966 peak
    —Not that spectacular of a performance considering the time frames involved
    (3) It is also interesting to note that the magnitude of the current bear market (when adjusted for inflation) is greater than what occurred during the dot-com bust of 1999 to 2003. As a result, the Dow currently trades at 12-year lows.

    Please learn and educate yourself everyone. I want to reach as many people as possible and I appreciate Ramit for doing such a great Job!

    -Anar

  117. One reason Americans became eager to buy homes is that landlords were unscrupulous until laws were enacted that restricted them from certain practises. I understand that some people got carried away and bought more than they could afford, etc. what I don’t understand is the remarkable self-righteousness of those who “knew better.” Maybe not everyone “deserves” to keep their home, but there does need to be some regulation that doesn’t allow predators to prey freely. Regulation is good when it reins in greed. It’s even good for the greedy. Anyone who applies Darwin’s theory of evolution to the market, should reread Origin of the Species. There is evolutionary sense in protecting a community from predators. Note Canada’s banks remain solvent.

  118. It’s a crisis, but it’s not as bad as it seems. Warren Buffett is buying bank stocks… That should give us all a sign.

  119. it must be nice to be able to worrie about all this money everyone seems to have. “balanced portfolios” or just portfolios in general are a luxuiry that most people dont have. we need jobs and population controll. let me make that dollor and then ill worrie about my “portfolio”.

  120. What an amazing read! And yes, you’re absolutely right.

  121. [...] I Will Teach You to Be Rich shares his take on the financial crisis. [...]

  122. [...] I Will Teach You to Be Rich shares his take on the financial crisis. [...]

  123. [...] Sethi from the I Will Teach You To Be Rich blog just wrote a post, The Truth: What Obama and McCain wont tell you about your money, talking about some things that neither presidential candidate will tell the American people about [...]

  124. WOW Im impressed at this all

  125. I am not quite sure how I came to receive another email from iwillteachyoutoberich.com having unsubscribed to this drivel months ago. I just got fed up with the blinkered economics that accept the status quo as being ‘normal’ and arguing from an already shaky baseline. Of course every American should own their own home, for christ’s sake they don’t actually cost an arm and a leg to produce, and there’s absolutely no justification in spending two lifetimes worth of income to buy one..

    The false values that property currently attains or loses is a function of a corrupt financial system. A system where a vast swathe of the population that creates absolutely no real wealth live like parasites on those who actually create the real wealth, on the people who make all the things we all judge our wealth by.

    And the ironic thing is that it’s the wealth creators that are forced to go cap in hand to the banks to borrow back the wealth they created to buy back the very things they made in the first place.

    If you want to see it all for how it really is, take more than one step back, throw away the blinkers and take a really good look around, and hope to your god you’re not around when the wealth creators wake up.

    • Cliff: If you truly unsubscribed and still received an email from me, please send me an email and I’ll make sure you’re removed. I don’t know what the hell any of the rest of your comment meant (nor do I think anyone else does), but I want to make sure you’re unsubscribed if you want out. I also noticed that you’re commenting on a post that’s months old.