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So, a recent thread today got me thinking about this, and I also posed this to a economics & finance class I teach. I love being able to deviate and have some fun with them on Fridays. We ended up having a great discussion.

The scenario for my students: you've graduated from high school, are you going to go to college? If you go to college how much is that school going to cost and who is paying for it? You, mom, dad, student loans? If you don't go to college, what employment are you going to obtain and what is your hourly rate or salary? For those going to college, post-college what is your employment? What are you going to make per hour or salary?

I posed these questions to show them the value of TIME that they have on their side. Compound interest, the 8th wonder of the world. The average college student graduates college with ~$25,000 in student loan debt, translating to roughly $400 per month repayment on most payment plans. The point I was making with them is that if you are able to get through college debt free, and then invest that money ($400 each month, so $4800 annually) in mutual funds that returns 8 - 12% annually (yes it is achievable with the right mix of mutual funds), and do this from the time you graduate college around 22 - 23 years old, and NEVER do anything else, no additional investment, no raise in salary, after 42 years of working you would have somewhere between $2,800,000 and $3,100,000 depending on how often they compound the interest. If you don't go to college and go straight to the work force and invest that starting at 18 (47 years worth of growth and investing), you'd have between $4,600,000 and $5,100,000 depending on how oftedn they compound the interest.  We then had a great discussion about TIME, something they have on their side, to just let their money grow. 

I asked them, how much is your time worth? What is it's value?

And this perplexed many of them (fun to see the looks on their faces). The monetary difference between doing something yourself, a home repair for example, and paying someone else to do it for you. One of my students had a great response, "the value of my time depends on the task needing to be completed." I thought this was an interesting and insightful response. We are going to have more discussion on this next week. Something I think youngsters tend to take for granted, time. 

Certainly as far as being able to age cigars, time can end up being extremely valuable. Also with wine, cars, or other items that appreciate over time. 

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8 minutes ago, FatherOfPugs said:

Certainly as far as being able to age cigars, time can end up being extremely valuable. Also with wine, cars, or other items that disappear over time. 

Fixed it for you 

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Just now, Cayman17 said:

Fixed it for you 

True, LOL!  A lot of things do disappear over time.

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2 hours ago, FatherOfPugs said:

"the value of my time depends on the task needing to be completed."

A very accurate answer.  This guy gets and A.  I don't delegate well and have a hard time paying/having other people do things I can do myself.  However, when the time/cost benefit is calculated, I follow the correct direction/answer even if I don't necessarily like it.

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44 minutes ago, HarveyBoulevard said:

A very accurate answer.  This guy gets and A.  I don't delegate well and have a hard time paying/having other people do things I can do myself.  However, when the time/cost benefit is calculated, I follow the correct direction/answer even if I don't necessarily like it.

It's all about the justification. Some people, even if they have the necessary skill required to do the job, it is more cost effective for them to hire someone else to do it for them. I'm guilty of this. I'd rather spend my time making money and it's worth it for me to let someone take care of the minor details. Even just vehicle maintenance, which I used to do myself. Alas, no more. Not worth my time and effort

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1 minute ago, Derboesekoenig said:

It's all about the justification. Some people, even if they have the necessary skill required to do the job, it is more cost effective for them to hire someone else to do it for them. I'm guilty of this. I'd rather spend my time making money and it's worth it for me to let someone take care of the minor details. Even just vehicle maintenance, which I used to do myself. Alas, no more. Not worth my time and effort

Agreed. Don't always like it but I'll do it. 

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I subcontract everything out except mowing, grilling, smoking cigars, and drinking scotch/wine/rum/port/bourbon/cognac.  My leisure time is precious (and rare). 

 

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I often say that time is the only commodity we really own. How I spend mine is the only free decision I really get to make - as long as I am capable of thinking about it outside the box. 

For example, I tired of spending so much time looking for my wallet, keys, and phone every day. I learned that the color pink (all the way to fuchsia or magenta) stands out like a sore thumb to my eye. I got a pink wallet, cellphone case, and key cover. At 10-15 minutes per day wasted looking for these things... I saved myself THREE CALENDAR DAYS per year - by thinking differently. That’s over 1% of my waking hours that I have freed up for things that actually matter to me.

The stimuli which I spend the most time exposed to... they make me who I am - literally. Our personalities are, fundamentally, a reflection of our stimuli. Realizing that I’m already sleeping away ~1/3 of the time that I get on this earth, I want the other time to matter. I’ve decided, on a fundamental and cosmic level, what *really* matters to me in life. Unexpectedly losing my father at an early age actually helped with this. The intense grieving process made me really examine what was important to me in life. Never once did money, possessions, status, or power make it anywhere close to the top of the priorities list. Now I have completely engineered my lifestyle around doing as much as possible of what matters to me, and as little as possible of anything else, as quantified by proportion of time spent. 

I’ll be damned if I’m going to live my life chasing some ‘dream’ that society has fed me as an ideal. That ‘dream’ is a construct which, in conjunction with the prussian model of education, is designed not to enrich me spiritually, but rather to ensure that I am a willing cog in a machine that is built not to serve Man, but to serve men. I want no part in that charade. I spend my time - down to the minutes and seconds - doing what I think really matters. 

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It's all about your end  "objective". Objective is all about personal utility.  Proper actions deliver objective. 

If you study to solely achieve financial security (objective) then in your paradigm you have at least two possible options. 

If you study to  seek the joy of learning (objective 1) as well as financial security (objective 2) then you only have one option as presented. 

Value of time = the closer that task will take you to your objective. 

 

Nice class mate :clap:

 

 

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So, my class and I had more discussions this morning about time and money. Some of the kids said they had great discussions with mom and dad about retirement savings, and how much in student loans they may need to take out for college. I was glad to see many of them thinking about this now and not after they graduate. 

The question for today was: which would you rather have, $1,000,000 right now or $.01 today and then each day for the next 31 days I give you double what I gave you the day before (on day 2 you get $.02, day three $.04, so end of day 3 you have $.07 total, etc, not the traditional double your penny, but double your money add to what you already have from the previous day).  My end goal is was to get them today to think about delayed gratification in this world of instant gratification.  I gave them 10 minutes to discuss in groups on which one they wanted, and then make an argument why they chose what they did. 90% of the class wanted the $1,000,000 right now. I wasn't surprised, but more so sad that out of 25 kids, 23 of them wanted the money right now. Only 2 kids were willing to be patient to see the payoff. I'll spare the boring details, week 1 your total is $1.27, week 2 you total is $163.83, it isn't until week 3 where things get interesting, your end total at week 3 is $2,097,151. And during week 4 it really takes off, you end up with over $21,000,000 if you wait. 

Some of the kids could not believe it when we wrote out the entire thing on the board, but it was right there. 

Now, don't get e wrong, if I won the lottery I'm taking the lump sum right now, lol!  But....I have a better chance of being struck by lightning so I am taking the slow and steady approach, which is the point to the kiddos today, relating to compound interest over time we discussed on Friday. One kid told me I was the tortoise, from tortoise and the hare, I responded by saying, every time I read the book, the tortoise always wins.  That kid got an A for the day. 

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On 2/8/2019 at 4:17 PM, Cayman17 said:

I subcontract everything out except mowing, grilling, smoking cigars, and drinking scotch/wine/rum/port/bourbon/cognac.  My leisure time is precious (and rare). 

 

That's better now....

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28 minutes ago, wineguy said:

That's better now....

That would be better. I hate mowing (yard work in general, actually).  

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Where are these mutual funds making 12% p.a.?

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10 hours ago, FatherOfPugs said:

So, my class and I had more discussions this morning about time and money. Some of the kids said they had great discussions with mom and dad about retirement savings, and how much in student loans they may need to take out for college. I was glad to see many of them thinking about this now and not after they graduate. 

The question for today was: which would you rather have, $1,000,000 right now or $.01 today and then each day for the next 31 days I give you double what I gave you the day before (on day 2 you get $.02, day three $.04, so end of day 3 you have $.07 total, etc, not the traditional double your penny, but double your money add to what you already have from the previous day).  My end goal is was to get them today to think about delayed gratification in this world of instant gratification.  I gave them 10 minutes to discuss in groups on which one they wanted, and then make an argument why they chose what they did. 90% of the class wanted the $1,000,000 right now. I wasn't surprised, but more so sad that out of 25 kids, 23 of them wanted the money right now. Only 2 kids were willing to be patient to see the payoff. I'll spare the boring details, week 1 your total is $1.27, week 2 you total is $163.83, it isn't until week 3 where things get interesting, your end total at week 3 is $2,097,151. And during week 4 it really takes off, you end up with over $21,000,000 if you wait. 

Some of the kids could not believe it when we wrote out the entire thing on the board, but it was right there. 

Now, don't get e wrong, if I won the lottery I'm taking the lump sum right now, lol!  But....I have a better chance of being struck by lightning so I am taking the slow and steady approach, which is the point to the kiddos today, relating to compound interest over time we discussed on Friday. One kid told me I was the tortoise, from tortoise and the hare, I responded by saying, every time I read the book, the tortoise always wins.  That kid got an A for the day. 

Any of the kids say take the mil up front and invest in mutual funds?

 

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10 hours ago, WhiteMamba said:

Any of the kids say take the mil up front and invest in mutual funds?

 

Surprisingly enough no. They wanted to invest in the stock market, which led to a short discussion about risk versus reward. They wanted to "risk it for the biscuit," not exactly my thoughts on how to invest, but at least we were able to talk about risky investments. 

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10 hours ago, mt1 said:

Where are these mutual funds making 12% p.a.?

I have a couple in my portfolio, it depends on who your 401k or in my case 403b provider is and what they offer, whether it is Vanguard, TIAA-Cref, T.Rowe Price, Fidelity, etc. All of the mutual funds I've invested in over the past 10 years have a history of returns anywhere from a low of 8% to a high of 15%. They're out there, you just have to look at what is offered to you. For example, Fidelity has a mutual fund Fidelity Advisor Series Growth Opps, last year's return was 20.72%. Clearbridge has one Clearbridge Small Cap Growth A that returned 15% last year. It's just a matter of spending some time examining what is available to you. That is where I am going to spend class time next week, examining the different mutual funds that are out there: growth, aggressive growth, growth & income, guaranteed returns, and international funds just to name a few. 

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On 2/11/2019 at 9:34 AM, FatherOfPugs said:

So, my class and I had more discussions this morning about time and money. Some of the kids said they had great discussions with mom and dad about retirement savings, and how much in student loans they may need to take out for college. I was glad to see many of them thinking about this now and not after they graduate. 

The question for today was: which would you rather have, $1,000,000 right now or $.01 today and then each day for the next 31 days I give you double what I gave you the day before (on day 2 you get $.02, day three $.04, so end of day 3 you have $.07 total, etc, not the traditional double your penny, but double your money add to what you already have from the previous day).  My end goal is was to get them today to think about delayed gratification in this world of instant gratification.  I gave them 10 minutes to discuss in groups on which one they wanted, and then make an argument why they chose what they did. 90% of the class wanted the $1,000,000 right now. I wasn't surprised, but more so sad that out of 25 kids, 23 of them wanted the money right now. Only 2 kids were willing to be patient to see the payoff. I'll spare the boring details, week 1 your total is $1.27, week 2 you total is $163.83, it isn't until week 3 where things get interesting, your end total at week 3 is $2,097,151. And during week 4 it really takes off, you end up with over $21,000,000 if you wait. 

Some of the kids could not believe it when we wrote out the entire thing on the board, but it was right there. 

Now, don't get e wrong, if I won the lottery I'm taking the lump sum right now, lol!  But....I have a better chance of being struck by lightning so I am taking the slow and steady approach, which is the point to the kiddos today, relating to compound interest over time we discussed on Friday. One kid told me I was the tortoise, from tortoise and the hare, I responded by saying, every time I read the book, the tortoise always wins.  That kid got an A for the day. 

That's a great thing you're doing for these kids. I'll bet some of them will remember these lessons for the rest of their lives.

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39 minutes ago, bpm32 said:

That's a great thing you're doing for these kids. I'll bet some of them will remember these lessons for the rest of their lives.

Thank you!  That's the hope. If they do remember these lessons it will serve them very well. 

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7 hours ago, FatherOfPugs said:

I have a couple in my portfolio, it depends on who your 401k or in my case 403b provider is and what they offer, whether it is Vanguard, TIAA-Cref, T.Rowe Price, Fidelity, etc. All of the mutual funds I've invested in over the past 10 years have a history of returns anywhere from a low of 8% to a high of 15%. They're out there, you just have to look at what is offered to you. For example, Fidelity has a mutual fund Fidelity Advisor Series Growth Opps, last year's return was 20.72%. Clearbridge has one Clearbridge Small Cap Growth A that returned 15% last year. It's just a matter of spending some time examining what is available to you. That is where I am going to spend class time next week, examining the different mutual funds that are out there: growth, aggressive growth, growth & income, guaranteed returns, and international funds just to name a few. 

The question here is: does the usual risk/reward ratio still hold?  In other words, how risky are those investments that they return such high rewards?  I have seen fund prospectuses where they promise to invest in blue chips and AAA rated products only .... and then found, in the small print, that they reserve the right to invest double digit percentages in junk.  

The second question would be: if the funds so invested are destined to fund my retirement and old age, do I want to go the higher-risk route?  Would it not make more sense to let compound interest do the heavy lifting?  

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On 2/12/2019 at 10:57 PM, FatherOfPugs said:

I have a couple in my portfolio, it depends on who your 401k or in my case 403b provider is and what they offer, whether it is Vanguard, TIAA-Cref, T.Rowe Price, Fidelity, etc. All of the mutual funds I've invested in over the past 10 years have a history of returns anywhere from a low of 8% to a high of 15%. They're out there, you just have to look at what is offered to you. For example, Fidelity has a mutual fund Fidelity Advisor Series Growth Opps, last year's return was 20.72%. Clearbridge has one Clearbridge Small Cap Growth A that returned 15% last year. It's just a matter of spending some time examining what is available to you. That is where I am going to spend class time next week, examining the different mutual funds that are out there: growth, aggressive growth, growth & income, guaranteed returns, and international funds just to name a few. 

That's interesting.  I don't invest in much US funds, mainly for tax reasons, but those are good gross returns.  Thanks for the info, I'll have to take a closer look.

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On 2/12/2019 at 4:42 PM, gweilgi said:

The question here is: does the usual risk/reward ratio still hold?  In other words, how risky are those investments that they return such high rewards?  I have seen fund prospectuses where they promise to invest in blue chips and AAA rated products only .... and then found, in the small print, that they reserve the right to invest double digit percentages in junk.  

The second question would be: if the funds so invested are destined to fund my retirement and old age, do I want to go the higher-risk route?  Would it not make more sense to let compound interest do the heavy lifting?  

The great thing about mutual funds is they put your eggs in multiple baskets, unlike stocks where it is just 1. Since I teach a finance class, I read through everything including the fine print. Everything I personally invested in over the past 10 years doesn't put anything into what I would consider junk, and 8 - 12% return is what I consider reasonable, moderate reward for moderate risk. High reward would be those things that are promising they will double your money in a set amount of time, it can happen with individual stocks, but not necessarily so with mutual funds. 

The way I learned it was to invest in things with more risk at a young age, in the case of losing it you have time to make your investment back. Whereas you get older you want to shift your portfolio to things with more guaranteed returns albeit they will be around 3% or less, but you're not losing any money. That's one strategy. 

I let my kids decide for themselves how they want to invest and they have to reason it out and if they justify what they want to do, I'm fine with that. It's not my money, it's theirs. I'm simply trying to teach them that this is a marathon and not a sprint. Choose wisely and continue to invest over their working life and they should be well served for retirement. To answer your question, yes, let the compound interest do the heavy lifting over their working lives and by retirement they'll be surprised what they have at the end of 35 year say. The compounding of the interest you earn each year is done by not taking out the interest you've already earned from the previous year, keeping it in the portfolio to continue to grow. Eventually you're earning interest on the interest. 

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