September 9 - The Investment Magazine Dance

           Last class we spent the majority of the time reviewing Chapter 3 of Millionaire Teacher.  It was obvious that some students hadn't read it yet, so the discussion was sub-par.  We still got in a few points however.  These included 1) all investing portfolios should have three index funds (US, International, bond) 2) passive investing is more reliable than active 2) there are online financial service companies that help you invest for a small fee (Vanguard) and 3) Financial advisors want you to buy mutual funds rather than index funds because the advisors get more money that way.
           Magazines make their money through two ways: their readers and their advertisers. The readers pay a monthly or yearly subscription to the magazine to keep receiving it in the mail and the advertisers pay the magazine to have their ads put in the magazine.  Of course, it's very important to please both.  In Mr. Hallam's article, "The Investment Magazine Dance," (http://assetbuilder.com/andrew_hallam/the_investment_magazine_dance) he recalls one time where he wrote in an article that it is smarter to buy used cars rather than new. An advertiser for that magazine that sold new cars wasn't so pleased.  I think that is a tough lesson for Americans to learn.  Nobody wants to buy a car that somebody has already enjoyed before them.  We want the newest of the new, even if it would put us into debt.  On Chevrolet's website, they list their 2012 Tahoe starting at $40,000. (excluding taxes).  I found a used 2011 Tahoe for only $30,000 online.  That's $10,000 less for only a car that is only a year newer! If you were to take that $10,000 saved, invest it with a 9% interest for thirty years, you would make over $150,000 (http://www.moneychimp.com/calculator/compound_interest_calculator.htm).  You could buy three new Tahoes with that money!   Back to Mr. Hallam's article, it says that if an article does happen to say something that might offend an advertiser, there will be another article in the same issue refuting it.  Say an article is written on how passive funds almost always outplay mutual funds in the long term.  The next article might talk about how one mutual fund has beaten the stock market for five years.  I'm guessing the magazine does this so no readers or advertiser wants out.
        In Zarima's blog http://sb-sas33372.blogspot.sg/2012/09/august-4-2012.html she discussed how her finance tracking has gone.  In the month of August, she spent $827! This money was used for food, transportation, dinner, gifts, etc.  Grocery money wasn't even included in this sum.  Zarima is fortunate to be able to spend so much, but she could save hundreds of dollars by packing lunches and taking the subway.