In light of the holiday spirit, I thought it would be interesting to talk about the finances of Halloween across America. Who knew people are willing to spend so much just to get a little spook out of their friends or to get elder folks drooling over their baby's cute costume. Last Halloween, CNN did a survey on what the average American spends during this holiday (http://edition.cnn.com/2011/10/31/living/halloween-fun-facts/index.html). Even during harsh financial times and suffering economies, people are still willing to splurge for this late October evening. The average American household spent $21.05 last year on JUST candy. But what about the costumes you might ask? Well, US consumers spend... wait for it... $2.5 billion on costumes this year according to the National Retailers Federation. Ellen Davis from the NRF believes that people just like to get out every once in a while to have fun and spend money to forget about the financial troubles they are in. Then again, there will always be those parents who go spend hundreds to please their spoiled children, which raises the average. People also spend lots of cash on pumpkins, face paint, and haunted houses. Two Maniac Pumpkin Carvers come to Brooklyn each October and carve pumpkins that sell from $150-$400. The US produced more than one billion pounds of pumpkins last year.
Last class, Mr. Hallam showed us a Dalbar study that showed how much the average investor made the last 20 years versus how much the stock market made. The stock market made a remarkably higher percentage, 9.14% while the average investor only made around 3.83%. Along with stocks, we looked at the same comparison except this time for bonds. The markets made 6.89% while the average investor only made 1.81% in bonds. You're probably asking, how could this be? Why do so many people continue to invest if they aren't getting nearly as much as they should? Well, it's simple. There are two reasons why the average person makes much less in their investments than they should. Number one is fees. The majority of American investors use mutual funds and have people help them invest their money. A large portion of the money Americans invest then goes to their financial advisor, trade taxes, advertisement costs, etc. The other huge reason why Americans make less than they should is because of human error. We, as human beings, listen to our heart too much more than our brain. When the stock market is falling, we get a bad feeling and want to sell all of our stocks when the market is low. When the market is rising, we feel good and want to buy as much as we can. When we really, we should do just the opposite. Buy when the market is low, sell when the market is high.
I had a look at Zack's recent blog (http://sb-sas19540.blogspot.sg/). In it, he talked about Mr. Hallam's article, Investing From the Tour De France. Zack talks about how through this plan, you constantly need to rebalance an index fund and a money market fund in order to meet a certain goal. This sounds like a lot more work than a simple Vanguard retirement fund (don't have to do any work). This plan can be very effective; however, like Zack said, it requires taking money out of where you are making the most and putting it where there isn't much profit making going on. Most people would want to keep their money where it is increasing.
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