Tag Archives: decision making

Talking About Dementia

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The medical director of the hospice where I volunteer gave a lunchtime presentation on dementia.

An interesting stat she shared was 45% of people 85 or older will show symptoms of dementia. With longer life spans, we’re going to be dealing with more dementia.

The mechanisms for the various types of dementia are not well understood but she cited the following risk factors:

  • Heart disease
  • Stroke
  • Alcohol use
  • Diabetes
  • Family History of Dementia

Like most of us, I have all-of-the-above in my family tree. If I live long enough then it’s likely that I’m going to bump into dementia.

What to do?

  • Consistency and routine in daily living
  • Physical and mental stimulation – stay engaged in your family, in your community, consider part time work
  • Safety – ID bracelets, honest discussions about driving
  • Reminders & Cues – at 45 I have a system in place to manage my days – if you are used to subcontracting all your admin then consider bringing it back in-house before you become part of the elder elderly.

With my grandparents, we used atomic clocks (automatically set for time, day of week, date, month) to help them keep track. Towards the end, I ran my grandmother’s calendar and would handle arrangements for key appointments. They were both in assisted living and my grandmother commented that she would have moved in earlier if it wasn’t for her reluctance to ask for help.

There was an excellent question from the audience… Do my visits have any impact? The doc made the point that the impact of a visit might be not seen until later – when the patient is happier, more content. Don’t assume that low, or no, response means that you’re having no impact.

In my own family, the anticipation of a visit was very positive. I went as far as planning a series of rotating visits more than a year in advance. Each elder needs a champion to marshall caregiving resources.

Likewise, with demented patients, don’t assume that negative behaviors are disease related – the patient could be acting out in response to pain, lack of stimulation or excessive stimulation.

Interesting point for older athletes – the body’s thirst, and hunger, mechanisms dull with age (as well as due to dementia).

The doc shared that artificial feeding of demented patients doesn’t prolong life and changes the nature of death – this is due to complications associated with tube feeding.

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The thought of losing one’s mind is terrifying and the topic of assisted suicide came up. We didn’t have time to explore that issue, but it’s going to be on the 2015 ballot in Colorado.

Given dementia rates in my family, it strikes me as more productive to create a care plan, rather than relying on a quick death, or euthanasia.

I was also left with the following:

Be sure to consider “who’s suffering?” 80% of hospice patients have cancer so my experience with the demented is limited. That said, be sure to look inward when you’re dealing with a family member with dementia. Our minds can torment us more than the disease torments our loved ones.

583My grandfather had advanced dementia and was fully capable of experiencing happiness and joy. He maintained his dignity, if not his memory, until the end of his life.

The death of an elder is an opportunity to make better decisions within the entire family. What did we get right? What would we change? What advance directives are needed for the next generation? for myself? Is my life structured appropriately if I start to experience symptoms of dementia?

IMG_0920Most personally, it strikes me that if I decide to kill myself then I deny my community the opportunity to learn from the end of my life.

As a society, we can learn to live better by taking care of people on the way out. My grandmother was moderately demented at death. She faced death with courage and caring for her was a gift, not a burden.

Watching a loved one unwind from Alzheimer’s is extremely difficult and I hope to have the ability to avoid judging opinions different than my own.

Real people, tough decisions.

Better Thinking About Taxes

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Taxation is a topic that’s guaranteed to tip most people over the edge of rational thought.

Let’s see if I can help you make better decisions by slowing down your thinking.

The first thing you need to do is add up all the taxes that you’ve paid in the last year. Your total might include:

  • Federal, state and city income tax
  • Payroll taxes, worker’s compensation premiums and unemployment insurance contributions
  • State, county and city sales and use taxes
  • Real estate taxes and rates
  • Transfer taxes and stamp duties
  • Value-added tax (for my non-American friends)

The first step is painful. It’s a big number for almost everyone.

In fact, this step alone creates a level of pain that drives many smart people to over-react. Wind farm investments, geographic relocation and massive personal overheads are often reactions to a sense of injustice with regard to tax policy.

When I moved to Colorado, I was surprised to discover that it’s a low-cost place to live. In fact, it’s a far, far cheaper to live here than London, Hong Kong or Bermuda – all locations where I’ve paid significant taxes.

Taxes are best considered in light of our total cost of living. The cost of which includes education, housing and healthcare.

At the end of 2000, I left the low-tax environment of Hong Kong and ended up in New Zealand. In New Zealand, my marginal tax rate increased significantly but my core cost of living dropped by 95%.

Years later, working in Bermuda, I spent a small fortune on travel and living expenses to keep my average tax rate down. Eventually, I did the calculation that I’m sharing in this article and had an “a-ha” moment.

Today, in Boulder, my total tax bill (all of the bullets above) is roughly equal to the cost of a single private education in London, Hong Kong or Bermuda. With three kids, the life of an expatriate would be expensive. In fact, I’d have to work so much, I’d rarely see my family.

While an American city with a good school district is a low-cost location – even better was New Zealand. Moving to NZ, I lived with roommates, was covered by single-payer health care and worked for European / North American clients. I read about young people doing similar arbitrage with a bases in Asia, South America or small North American towns.

If you’re motivated then you can find opportunities to optimize your cost of living. Rather than worrying about your marginal tax rate, focus on the best location for your current life situation.

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As for the psychological impact of a tax increase, I often let my emotions get the better of me.

To understand your true exposure to tax rates, take your total tax bill and divide it by your net worth. That percentage is the true “take” of taxes from your family.

For example, consider a young woman earning $70,000 per annum. Her total taxes are  $17,500 and her net worth is $40,000. With an average tax rate of 25% (17,500/70,000), she’s paying 44% of net worth in taxes each year (17,500/40,000). She has a significant exposure to tax increases.

Compare the above to an older woman who’s been saving for many years. Her gross income is $165,000, her total tax payments are $50,000 and her net worth is $3.5 million. Despite having a far larger tax bill, her taxes represent 1.4% of her net worth. Her exposure to rising tax rates has been limited by decades of living below her means.

Smart savers free their families from exposure to tax policy.

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Takeaway points:

  1. Taxes are a component of living in a civilized society
  2. Analyze your cost of living in the largest possible context
  3. Healthcare, childcare, education, housing and real estate expenses must be incorporated in any discussion of taxation
  4. To understand your true exposure, consider taxes (and all other spending) relative to your family net asset statement

Minimum Effective Dose

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gordo_crunchMinimum effective dose is a concept popular in athletics. The first time I heard about it was through Joe Friel.  I think Joe defined it as, “the minimum dose of the most specific training to achieve the goal”

Contrast this with my (historical) default strategy of “a little more than the maximum dose that my life can possibly withstand.” At the time Joe shared his observation, I was trying to train about five-hours per day!

Last winter, Monica started doing mini-walks when the kids were napping. We live on a hill and she’d powerwalk a quarter mile up, then a quarter mile down.

For a guy that used to aim for five hours of exercise a day, a half mile walk is a “why bother” level of activity. I’d sit at my desk, watch her leave and ask myself, “what the heck is she doing?!” At the time, she was knocking out 45 miles a week on our treadmill.

I was in a depressive funk and, perhaps, the mini-walks were her way of showing me the value of something rather than nothing.

Well, it worked. I started my mini-walks and they turned into some of the most pleasant time of my day. I moved through my funk.

The medical literature that I read is mixed on the value of exercise beyond about an hour a day. However, the value of movement (across a day) gets universal praise.

You can expand this concept beyond walking.

  • My relationship with my kids
  • Getting more efficient with my spending
  • Moderating my consumption of chocolate, beer or wine
  • Creating an ability to give a nice “no thanks”
  • Building a key relationship

A self-directed life comes from a habit of incremental change (but I have to constantly remind myself that the little things are worth it).

Should I Own Shares In My Employer?

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In the late-90s, I committed half my net worth into an investment scheme sponsored by my employer. The scheme was effectively leveraged 20:1. The deal worked out and was part of how I doubled my net worth within 24 months.

Emboldened by my success, in the early 2000s, I ended up with 100% of my net worth in a startup that was effectively leveraged 30:1. Taking out a home-equity loan, to cover my living expenses, triggered a desire to sell down my exposure.

The second deal worked out OK but it was painful. My returns fluctuated between +100% and -65% per annum. The ride up was fantastic, my net worth swelled 1,500%. The ride down was far less fun. In four months, the company crashed, I was unemployed and I watched 50 years’ living expenses go up in smoke.

So my answer, about owning your employer, is, “it depends.”

Depends on what?

Age – How old are you? What’s the implication of losing everything in the company, including your job? How long will it take you to earn your capital back?

The first time that I “bet the farm” I was 28 years old and able to save five years living expenses for each year I worked.

The money that I lost with the second gamble is gone forever. I’m grateful that I restructured my life to sustain that sort of loss.

Total Net Worth – What is your exposure as a percentage of your net worth? What is your exposure in terms of years living expenses?

Annual Free Cash Generation – Put your exposure in context. Based on the cash that you can save this year, how many years savings are tied up?

ProTip: the free cash generation check is a good way to review personal debts as well as the capital that you have tied up in your home. As our earning/saving potential changes, many of us are more exposed than we realize.

The above is an important cross check. If you’re sixty years old and 10% of your net worth represents ten years worth of savings… then you’re in a very different position from a twenty year old where 30% of net worth might equal six months worth of savings.

Reserves & Undrawn Bank Lines – after you make the investment, what are your liquid reserves and undrawn bank lines? Look at these in terms of gross annual salary, core family cash needs and your family cash flow forecast. How long can you last if everything blows up?

In my case, 50 years of living expenses went up in smoke but I knew that I had five years to figure out what to do.

Not wanting to make my life too easy, I had three kids in that time, which tripled my core cost of living. I didn’t anticipate that shift, but you can.

Contingent Liabilities – Does the investment have the ability to make further cash calls? Housing Associations, home ownership, private equity funds, partially paid shares… all can make cash calls at short notice.

Finally, be ruthlessly honest when you estimate your true exposure:

  • Salary
  • Bonus
  • Vested Equity (Shares & Options)
  • Unvested Equity (Shares & Options)
  • Pension / Retirement Account Exposure
  • Cash that you’ll spend if your employer disappears

The employees of Enron, Arthur Anderson, Lincoln Savings & Loan, and Lehman Brothers experienced a severe shift in less than six months. There are many more stories but it’s human nature to talk more about the boom, than the bust!

Conversations With Hollywood

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Yankee Doodle Lake

I have a friend that is a Hollywood producer and is willing to visit me in Boulder.

Hollywood, LA, TV… it’s a long way from the life that Monica and I have chosen for our family. I knew that there was something I could learn.

HollywoodWhat’s good about living in LA?

The two best things are the wealth of opportunity and the diversity of humanity with whom you can work.

In a sentence, my pal summed up the benefits of working internationally.

Being social creatures, we all share a bias towards our “in-group” – whatever group that might be – gay, straight, white, hispanic, Chinese, Malay, athletic, Jewish, firm, family, team, tribe… you name it.

My pal placed his family right in the middle of one of the most diverse places in the world.

Snacks

What’s your secret?

Young people that experience significant success are often asked their secrets…

Never underestimate the value of luck

It’s takes uncommon self-awareness NOT to attribute success to individual skill. As a young man, I lacked the humility to see the massive tailwind that led to success.

Above Ten Thousand FeetGratitude

Over the last few days, we spent 20 hours riding in the mountains.

However, at the start, only one of us could truly see the view! He’s raving about the beauty of the scenery, posting up on Instagram and smiling from ear-to-ear.

At first the little voice in my head is going, “of course it’s beautiful… you frickin’ live in LA!”

However after a dozen hours, I realize that I’ve been infected by his relentless positivity.

A deep happiness combined with a genuine desire to understand my point of view. Highly addictive!

Big Air

Think big, you have nothing to lose

You’ll never find out if you don’t try. Being an inspirational figure, my buddy implores… “you MUST try.”

Keep trying until you fail – that’s the only way to learn that failure isn’t fatal.

The picture above shows that he practices what he preaches. One year into riding his mountain bike, he can crush me on all technical terrain.

I was schooled, and impressed.

Rest StopTurning the tables, he asked me a question, What’s made a difference?

When I listen to people talk about their lives, I’m impressed by the quality of their (largely unconscious) thoughts.

We share moments of deep insight. However, and most certainly in my own case, insight is brief and fleeting!

The dark periods of my life spur a desire for change. In my early 30s, I realized that I had nothing to lose, wrote down my insights and started to make small change a habit.

It takes a while but, like compound interest, 14 years of (mostly) good decisions add up.

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Thanks for the visit, buddy. I hope we meet again but, even if we don’t, I’m grateful for our time together.

My Financial Domain and Legacy

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You can find my Part One here and Paul’s thoughts on Part One here.

#3 – What are the other things in life that are critically important to me, and for which I will be financially responsible?

This is a great question.

Be sure to run your answer by your therapist.

Why?

Because people that are high-achievers and good savers tend to take on responsibilities outside of their domain. I’ve watched families make themselves miserable by taking ownership of the financial wellbeing of adult relatives.

What’s my financial domain? Myself, my spouse and my minor children.

Watching people that I love struggle is no fun at all. However, I respect the people that had the courage to let me suffer as a result of my own choices.

#4 – What are the risks in the universe which may prevent me from fulfilling my responsibilities to myself and to others, and how might I defend against them or at least mitigate their impact?

Another great question!

Humans are lousy at assessing risk and statistics. An excellent investment you can make is reading Taleb’s Antifragile – please don’t use the book as motivation to set up a personal derivatives strategy!

Pro Tip: use insurance products to insure an identifiable risk, not make investments.

#5 – If I have accumulated wealth that exceeds all of the above requirements, how might I best utilize that wealth to derive the most personal satisfaction available from life?

It’s a shame that it takes so much money for people to realize they had won before they even started.

Value your time, more than your money.

Diversify your time towards helping people that have less of what you think you need. Specifically, teach what you’ve learned.

Improve your family’s human capital, starting with your health, your manners and your gratitude to the society that enabled your success. Start with small, simple changes:

  • Physical movement AM and PM
  • Get strong
  • Eat real food
  • Be a little more kind
  • Be a little more fun
  • Optimize your health markers via diet and exercise (blood pressure, cholesterol, blood glucose, body composition)

If you are a self-made person then love the people closest to you by ensuring that they have the opportunity to prove their self-worth via their own initiative and through their own passions. Tell your kids when they impress you.

Be willing to constrain yourself to create harmony within your family and community.

Laugh out loud.

Don’t Know, Don’t Care

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Lexi's Pink BootsA story that runs far beyond your portfolio.

Like most of us, I tend to shun painful thoughts, people, experiences…

However, in reading a book on finance, Your Money & Your Brain, I discovered a better way to think, and live.

Don’t Know, Don’t Care

Rather than getting rid of whatever seems to be bothering me. Why don’t I move my life towards a position where I’m OK either way.

In the finance book, the author was making the case for passive investing.

  • What’s going to happen to… ?
  • Should I sell?
  • Should I buy?
  • Where will interest rates be next year?
  • Corporate profit margins, availability of bank credit, tax policy, insolvency risk, terrorism, politics….

There is no end of worries available to you.

If you’re following a passive strategy with a fixed monthly investment then none of the above matter.

Another benefit is I don’t have to follow the noise that’s constantly pouring out of the media.

Once I saw the logic of changing one area of my life, I started to consider the other areas where I trade happiness, for worry.

Step into the mind of young woman:

  • Will they like me?
  • What will they think about my shorts?
  • Do my shoes match my outfit?

Sweetie, I don’t know but I think you’re terrific.

The “don’t know” strategy doesn’t make me immune to the opinions of others, but it gives me a mantra to occupy my mind on something more useful than worry.

Life is none of my business.

Setting Family Financial Priorities – College and Retirement

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wedding_day

What’s next? It’s tempting to think about my kids. College accounts are on my list but they aren’t the next priority.

Why?

Because kids that will be successful don’t need much help and the family (particularly a financially responsible child) gains by not having to pay for Mom and Dad’s Golden Years.

Education has an mixed return on investment. Here’s my article on how families blow more than $1 million per kid. It’s a rare family that looks at education in terms of return on investment.

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If you want to give your family a leg up then take care of yourself. Do this by max’ing out your retirement accounts – especially anything with an employer match.

I have a single member 401K under my consulting business. If you’re self-employed then you can find out your options by getting in touch with Vanguard.

I spent Friday afternoon shifting my retirement assets and Vanguard has an online tool that the self-employed might find useful.

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What about college?

In current dollars, my pals that have put their kids through college have spent $200,000 per kid.

That’s $600,000 for my family of three – ignoring grad school.

Considering my entire family tree, there is no way the family would earn a reasonable return on that level of investment. Of course, my mind likes to tell me that MY kids will be different!

Thinking about the opportunity cost of $600,000:

  • A lifetime annuity of ~$2,400 per month – starting now
  • We could move into one of the best public school districts in the country
  • We could buy three rental properties and teach our kids about money by having them involved in deciding to borrow against the properties (or not) to fund their educations. The kids could receive a direct financial benefit from minimizing the cost (if any) of their educations
  • We could help send a dozen kids to grad school
  • We could back a family member to buy into an established professional practice
  • We could work less (for the rest of our lives) and make the world a better place
  • We could live abroad long enough for the kids to become bilingual (or to gain residency in a country with free education, national health care and retirement support)
  • We could improve the lives of thousands of people in the developing world (schools, safe drinking water, medical care)

The ideas above ignore the cost of the misery that we give ourselves worrying about funding college!

Given that I’m unsure that the family wants to support three college educations, we are working towards funding one college education spread between three 529 accounts.

Total annual contributions to college funds can be $14,000 per kid, per parent => a potential investment of $84,000 per annum for a two-parent family with three kids.

For all but the top 2% of US earners, paying for everything will be out of reach.

Don’t beat yourself up.

The best thing I can do for my family is love them and work on continually improving myself. I’ve come to see the benefits of my constraints.

Setting Family Financial Priorities – Healthcare

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Over the last ten years, my family has incurred well over $300,000 of medical bills – births, broken wrists, malpractice, sick kids, MRIs – it all adds up.

In my family budget, I include my premiums ($7,872) and my entire deductible ($7,500). We fund our deductible via our HSA ($6,550 family contribution limit in 2014) and top up when required. The HSA is funded automatically each month so I’m forced to save that money. Most US Bank’s have a subsidiary that can help you set up an HSA.

$15,000 per annum is a lot of money but most years, we “save” a dollar for each dollar we pay out.

BellaFor example, my daughter spent 4 nights in the hospital:

  • $18,500 retail price became $8,500 after discounts given to my insurer
  • $8,500 bill blew through our deductible so we received a $7,500 invoice
  • We had previously saved $5,000 in our HSA so…

End result… I write an unexpected check for $2,500 instead of $18,500.

Health insurance offers up some benefits:

  • Cap our potential liability
  • Access the discounted rates offered to our insurance company
  • Pay automatically (direct debit insurance payments and HSA contributions)

Sidebar: work with health benefits would be a valuable addition to our family. A decent health plan could save us $15,000 per annum.

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My next investment is a long-term care policy – about $5,000 per annum for the two of us. Even though the likelihood of payout on the policy is remote – for now – the policy gives me a lot of comfort in case tragedy strikes my wife, or me.

More on this in a post from 2010.

If I couldn’t afford my retirement investments then I’d skip the long-term care insurance, it has a low expected return on investment.

Getting Crushed Financially

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Market Moves

I love this chart.

Blow it up, print it out and study!

Jerry created the chart to show nearly a century of bull markets but what caught my eye was the nature of the eight bear markets.

  • Duration of 3 to 34 months
  • Scale of loss (peak to trough) of 22 to 84%

If you’re an investor then it’s important to realize that it is perfectly normal that you’ll get crushed once a decade. Knowing that it’s normal won’t make it hurt less, but it might make you realize that your pain is temporary.

Personally, my worst bear market was 2008. It was a doozy.

In the space of six months:

  • my family’s net worth fell 65%
  • I lost my job
  • My dependents doubled
  • I discovered that my (joint & several) partner was involved with fraudulent activity
  • I was exposed to the risk of civil prosecution

Absolutely awful.

I share this story to help you remember that THE world isn’t ending when YOUR world collapses.

Setbacks are part of life and my making it 20 years without a major financial setback was abnormal. In fact, I had several setbacks along the way (15% hits) that I’d forgotten.

Save the chart for a rainy day and I’ll retweet at the next recession.