Lessons from Avis

What does it mean when a stock does really well for you?

As I noted before, the Casino Mentality pervades our investment community, and average citizens are exhorted to join in on the fun - promised untold riches, if only  they would gamble.

It is a bad idea.

It is not that you will never win, only that you will win often enough to think you might actually get good at this - and when that happens,  you will likely lose it all.

For example, as I noted before, during the dip of 2009, I had a martini one evening and heard that Avis was trading below a dollar a share and some thought it was going to go out of business.

So, a little tipsy, I logged into my E*TRADE account, which had a $750 cash balance, and bought 1000 shares of AVIS (symbol CAR) for 74 cents a piece, which, with the $9.99 trading fee, came to $749.99 and left me a penny cash in my account.

Six months later, I logged into the account, and the stock was worth well over $10,000 - and showed a gain of 1200%.  Since then, the gain has gone to 1700% and yes, I sold most of it (I still have $2000 of it).

Now, take this simple test.  From the above story, what do you take away?  Pick one or more of the following:

1.  It is a good idea to get drunk before you invest.

2.  AVIS is a good buy today - after all, it went up in price, right?

3.  You should ignore your investments for months at a time.

4.  You can get really rich in stocks if you pick the right ones.

5.  Once in a while you get lucky - just lucky enough to keep you playing the game.

The correct answer, of course, is (5).  Investing while intoxicated is a bad idea.  AVIS was a good buy in 2009, but there was no way of knowing that at the time, without a time machine.  And today, it is not necessarily a great buy - the major gains have already occurred.  It would be like buying Apple today, after it has shot up in value.   Not monitoring your investments too much is a good idea.  Neglecting them for months on end - probably less of a good idea.  Stocks will never make you rich, unless you are willing to gamble it all on a few long-shots and hope you get lucky.   You likely won't.

No, the real answer is, once in a while you get lucky, and this keeps you in the game.  But, like in poker, often this is a poor normative cue as you win just enough to get you to gamble more, and you keep throwing good money after bad, hoping to achieve that great rush of winning it big.

Winning it big can be a bad thing, sometimes, as it just encourages you to gamble more.

And middle-class people can't afford to gamble with their future.

Strippers Don't Take Coupons!

Ron White once famously said that Strippers Don't Take Coupons!   But back in the day, you could strip coupons from bonds.  What does this mean?

As I noted in a previous posting, bonds are a tricky investment, and you should learn about an investment before you plunge into it.  And never invest all your money into one big thing - if it goes bust, you are in a world of woe.   And yet, many people do both - they invest in things they know little about, convinced they are going to "Strike it Rich" and they bet all their money on that one thing, with predictable results - they end up broke.  The Casino Mentality at work, I'm afraid.

The following information is provided for educational purposes only and is very basic information.  I am not suggesting or promoting any kind of investment.   But many people are confused by basic bond terms, and this is an attempt to explain them, to the best of my ability, as I understand them.

Bonds are deceptively simple.  They look about as complex as a car loan.   You loan money to a company, and they hand you a bond, that has a face value of the amount you loaned, and an agreed upon interest rate (the coupon rate) and repayment terms.   You get X% interest payments at predetermined times, and then the face value is paid off at the end of the bond term.

So, for example, you have a $1000 bond from ACME Corporation with a Coupon rate of 5% payable annually, for five years.  For the next five years, they will pay  you $50 (5%) every year, and on the last year, pay you back your $1000.

Now, right off the bat, if you are astute, you may notice there are two transactions going on here.   First, they are paying you interest, like in a savings account, which is one transaction.  Second, they are paying you back your original amount, which is the second transaction.   And people, in the past, were able to separate these two transactions and take a bond and "strip" the coupons and create two, new, separate financial instruments.

Back in the days of strippable coupons, a bond would come with a series of little "coupons" at the bottom, that could be cut off.  Back in the day, those were often bearer bonds which meant that they were bearer instruments and that whoever held them in their hand was the nominal owner.   Lots of things are bearer instruments such as lottery tickets and cash (although technically, you could make a legal claim to both, but it is an evidentiary nightmare).

And as you might imagine, bearer bonds are problematic, because if they are stolen or lost, the fellow who steals them or finds them can cash them in.   And, as you might imagine, they were also popular with criminals and folks wishing to do bad things, which is why, in the movies, Tom Cruise tells the bad guys he wants to be paid in "Bearer Bonds with the Coupons Attached" - it sounds so cool, but rarely happens today.

But getting back to coupons, you can strip the coupons, but stripper won't take coupons.  Remember that.  Actually, a stripper would take a coupon from a bearer bond, and give you a lap dance to boot, because they are like cash, in many instances.   Each coupon represents an interest payment - 5% for the first year, 5% for the second year, etc.   Taken together, these coupons represent a small annuity, sort of, guaranteeing payments every year for 5 years, in our example.

These coupons have a value, and you can calculate the value based on the future value of money.  And in fact, the coupons are, sort of, little mini-bonds.  While the basic bond (stripped of coupons, or a zero coupon bond) is a promise to pay back, in our example, $1000 in five years, each coupon is a similar promise to pay $50 in one, two, three, four, and five years, respectively.  In other words, each coupon is, itself, another zero-coupon bond.


And some bonds are actually issued this way - as zero coupon bonds which basically say, "I will pay you $1000 in five years" (using our example).   And of course, the value of such a bond, in the present, is less than $1000.

How much is it worth?  Well, you can calculate this, using Future Value of money calculators.  Future Value or "F.V." can be determined, based on the expected rate of return, the assessed risk involved, and the like.  In essence, the market determines how much less you pay for the bond than its face value, and this is often referred to as the discount rate.

So, for example, if we assume a 5% rate of return for one year, the discount rate of the first coupon might be 95, meaning we'd pay 95% of the face value of that coupon ($50) or $47.50.  The other coupons, and the original bond might be similarly discounted.

Now, note a funny thing here.   When we took the original bond, we said there were basically two instruments here - the main bond, and the coupons, which if we could strip, would represent a second type of financial instrument.    But in reality, when you strip the coupons off, each of them becomes a zero coupon bond - so really we have two of the same thing, just in different sizes and maturity dates.

Today, strippable or detachable coupon bonds are not very common.  When you buy a Corporate Bond, you buy the whole thing - the basic bond and the coupon payments. We still refer to the interest rate paid on the bond as the "coupon rate" which is where that term originated from.

And the reason detachable coupon bonds are not that common, is that bearer bonds, in these days of computers and whatnot, are not all that common.  All the fun stuff like offshore accounts, numbered Swiss bank accounts, and bars of gold and uncut diamonds, are sort of going by the wayside, as governments try to get a better handle on their economies and also fight crime and terrorism.  Bearer instruments are just not as commonly used anymore.

And since the coupons are basically zero-coupon bonds themselves, buying bonds and stripping the coupons is sort of silly - you are just taking bond and dividing it into smaller bonds.

However, you do see Zero Coupon bonds (that is to say, a bond that pays out face value only, after a predetermined time).  And for example, the U.S. Treasury sells both kinds.  If you go onto Treasury Direct, you can buy U.S. Government Debt Instruments, which include Savings Bonds, Treasury Bills, Treasury Notes, and other things.  When you buy a Treasury Bill, they hold an auction, and the market determines the discount rate on the note.  It is a zero-coupon bond type instrument.  When you buy a Treasury Note, on the other hand, it is more like a traditional bond, which pays out interest (twice annually, credited to your checking account) and then the face value after a number of years.

Should you buy any of these things?  Corporate Bonds?  Municipal Bonds?  Treasuries?  Yes, No, and Maybe, as I said before.   I would educate myself as to what I am buying and understand the risks.  Usually the higher the return the greater the risk.  You could make 240% on a Mohegan Sun bond, or go broke.  You won't get rich on a Treasury Note (2% over 5 years) but you won't lose your initial investment, either.

And it goes without saying, never invest in one single thing. 

Real Rich versus Pretend Rich

A lot of people in America think they are wealthy.  But if you derive your income from a salary, business, or other incremental venture, you are not really rich.  Real wealth is in owning money, not consuming or earning it.

A friend of mine is wealthy.  How wealthy?  Well, she has a net worth in the millions, which was mostly due to an inheritance.  She does not have to work, ever, ever, unless she chooses to.  Ironically, she often chooses to, which illustrates why work, for many people, is about more than making money.

Most Americans will never be wealthy, but will think they are, at one time or another in their lives.  Many middle-class, upper-middle class, and professional people think (or thought) they were wealthy by dint of their owning luxury cars, look-at-me houses, and other trappings of real wealth.

But since they were borrowing money to own most of this stuff, and were working at a job to earn money, they were not really wealthy, by definition.   It was not Real Rich, but Pretend Rich.

What is the difference?  To the outsider, the two may appear the same.   Both have fancy houses and cars, and whatnot.  Both live in swank neighborhoods and belong to the country club and go out to eat at the same fancy restaurants.

But the really rich people can afford to do this, and not have to work for a living.  And that is the definition of "wealth" right there - accumulated money, not cash flow.

The Pretend Rich?  Well, they have a good-paying job, but that is not the same thing.  They make the vaunted six-figure salary - or even seven-figure salary.  But instead of accumulating and investing this money to accumulate real wealth, they spend it - on houses, cars, boats, boarding schools, fancy restaurants, expensive vacations, and as a result, have no real wealth to speak of - just a huge income and huge expenses.  The are living the cash flow lifestyle which is just a pretend version of rich, not a real accumulation of wealth.

Now, if you are making a good salary, you can accumulate wealth and become really rich.  The sad thing, of course, is that for most folks, this can take a lifetime to achieve, so the end result is a nice retirement and maybe leaving some money to your ungrateful and lazy heirs.    But that is the nature of inherited wealth in this country - it takes on generation to earn it, and about five or six to squander it all away.

Wealth is not parked in your driveway, nor is it represented by your street address, what clubs you belong to, or what clothes you wear.  These are trappings of earnings, and oftentimes, ironically, the really wealthy eschew these sorts of noveau riche sort of things.  Only the people of the poorest taste engage in ostentatious display - or so was the thinking not to long ago.

To many folks today, of course, this is what they think of, when they think, "rich" - and our popular culture promotes consumption as a sign of wealth.

But real wealth is defined by accumulated capital, not squandered capital.  A man with a Lamborghini in his garage is not rich, if he is making payments on it - and everything else in his life.   If he has to get up in the morning and go out and hump to keep it all, he is not rich at all - just a poor person with nice shit.

But, the person who doesn't have to work - ever - because he has enough accumulated wealth to live off of, for the rest of his life, he is the wealthiest person ever.  And it doesn't matter if he has $500,000 in the bank and lives frugally, or has a Billion dollars and lives like a movie star.  The main point is, he has accumulated capital, is beholden to no one, and owns his own life, free and clear.

Everyone else is a slave.  Period.

And slavery today comes complete with bling-encrusted manacles.  Most Americans sell their souls for cable TV, a smart phone, and a Japanese luxury car - convinced that having these things, and continually paying for them, will mean they are rich.  The reality is, they keep working, keep paying, and never end up ahead of the game.

And when all is said and done, and they've worked themselves to the point of exhaustion and can no longer work, they will discover that they never were wealthy, but rather were running as fast as they could, in place, to keep up the appearance of wealth, to impress unknown others.

So, how do you become wealthy?  Well, there are two ways.  You can earn more or your can spend less.  And anyone in any income bracket can do this.   If you can learn to live on less money - to spend less and stop being attracted to the appearance and trappings of wealth, you can accumulate capital and eventually have enough to live without working - and thus have real wealth.

If you can earn more, so much the better, but don't count on it.  For most Americans, their earning potential is, alas, finite.  If you are a Nurse, Doctor, Welder, Engineer, or Lawyer, chances are, the most you are going to make is the average that a Nurse, Doctor, Welder, Engineer, or Lawyer makes.  There is no Billion-dollar payout for middle-class or upper-middle-class people.  But if you play your cards right and avoid the consumerist bandwagon, there might be a million-dollar payout - or at least a half-million.

Pretend Rich is a fun game to play - for a while.   But it is costly, and eventually you will have to quit the game.  Why?  Because eventually, your health will fail, your strength will ebb, your job skills will no longer be in demand.  And at that point - which arrives far sooner than we expect - you had better be in a position to live on your wealth.  Because the alternative is not pretty, let me assure you.

Stock or Bonds?

Which  is a better investment, Stocks or Bonds?

I wrote before about corporate bonds, and until recently, I had not invested in many of them.  Bonds are not sexy, and the financial channels and the shouting guy and the guys in the clown suits don't talk about them much.   Everything, we are told, is the almighty Dow Jones Industrial Average, and bonds are barely on the radar.

But what is the difference between stocks and bonds?  And which is a better investment?  Traditionally, we are told that corporate bonds are risky - and this is true.  But are they any riskier than stocks?  In some respects, no.

Stocks represent an ownership stake in a company.   With a stock share, you can vote for the Board of Directors, vote on Corporate resolutions, and other actions involving control.   If the company is liquidated, you will receive a pro-rated portion of the liquidated assets of the company.  And if the company makes money, you will be paid a portion of the profits as dividends from the company.

OK, re-read the last paragraph again, and this time, assume every sentence in there is a big lie.  Because it basically is.  No, really.   Let's take a look.

Stocks represent an ownership stake in a company:  While this is theoretically true, as an owner of an infinitesimal interest in the company, you really don't "own" anything.    The majority shareholders can run the place as they see fit, without your consent.  Even in a proxy battle, your pitiful investment is not going to swing votes one way or another.   While you are an "owner" in theory, the reality is, if you own 1,000 shares in a company that has millions of shares outstanding, you don't own bubkis.

With a stock share, you can vote for the Board of Directors, vote on Corporate resolutions, and other actions involving control:  This is true, again in theory.  But the fellow who owns a million shares has a million times more votes than your one share.  So often, you vote doesn't really count.  Proxy wars and shareholder resolutions sound like fine and wonderful things, but unless the really big shareholders go along with it, chances are, your vote means nothing.

The other day, representatives of the Board of Winn-Dixie called me to ask for my vote on the proposed sale to Bi-Lo.  My 200 shares are not really going to make much of a difference, but I was on the call list.  The fellow with thousands of shares or tens of thousands of shares - his vote counts.

 

If the company is liquidated, you will receive a pro-rated portion of the liquidated assets of the company:  Again, technically true, but in reality you get nothing.  The liquidation value of a company is often pennies on the dollar, and when most companies go belly-up, there is nothing left to sell, after creditors are paid.  Guess who those creditors are?  More on that later.  I received little or nothing from the bankruptcy of GM, Fleetwood, or Champion Auto Parts.   Just a sayonara and good-luck-Charlie.

If the company makes money, you will be paid a portion of the profits as dividends from the company:  Again, not really true.  Many companies do not pay dividends at all, but rather pay shareholders by buying back stock or retaining earnings.  And bear in mind that the dividends paid to shareholders come out of corporate profits, which are only reckoned after the company has paid the debts due and the interest on these debts.  What sort of debts are we talking about?  We're coming to that.

So the fantasy of stocks is really a fantasy - and yet we are told by the powers-that-be that investing in stocks is the only thing we should be thinking about, and all the financial channels harp on this, twenty-four hours a day.  Buy Facebook!  Buy Apple!  Buy! Buy! Buy!  Because, they tell us, the stocks can go through the roof and we can become millionaires.

But just as likely, they go through the floor and we are broke.   The financial channels and media promote the Casino Mentality of investing - that you can strike it rich by making the right investment choice, which of course, is a secret they are going to share with you and 50 million viewers.   Shhhhhh!

And of course, these same sources of poor normative cues are usually silent on Corporate Bonds.    Or, if they say anything at all, they say that bonds are risky, bonds don't pay well, and that you could lose a lot of money in bonds.  Is this really true?  Let's take a look.

Bonds are Risky:  This is true, but maybe not as true as you think.  When you buy a Corporate Bond, you are a creditor of the Corporation, and the debt instrument you hold is usually senior to other debts.    Long before shareholders see a cent of dividends, you will get paid interest on your bond.

In a Chapter 7 bankruptcy proceedings, the assets of the company are liquidated and the money used to pay off creditors first, and anything left over is paid to shareholders.  Since bondholders are creditors, they are first in line - ahead of shareholders.  So in terms of safety in liquidation, being a bondholder is better than being a shareholder.

In a Chapter 11 (reorganization) bankruptcy, or a debtor-in-possession bankruptcy, as the name implied, the shareholders are wiped out completely, and the debtors are given shares of stock in the new company.  Who are the debtors?  The bond holders.

This is, by the way, how people can "hollow out" a company, make money, and then take over.   You get control of a company, load it up with debt (that you hold the notes for) declare bankruptcy, strip off obligations like pension plans, and then as debtor-in-possession, take over the new company as majority shareholder.  See, e.g., Friendly's Ice Cream.  Edna the waitress gets a screw-job, while the guy running the place gets total control and all those pesky debts stripped off.  See also, Bain Capital, and Romney, Mitt.

So yes, there is risk in bonds.  But when a company goes belly-up (these days, often by design) you might be more protected as a debtor than as a shareholder.

By the way, this was Mitt Romney's beef with the GM Bankruptcy.  The shareholders were wiped out, which was fine with him.  But the bondholders (the Bain Capitals of the world) were not protected as in a usual bankruptcy.   Instead of screwing the pension plan, they protected it, and that just isn't American!  Or Morman, anyway.  Everyone knows the folks with all the money are supposed to win!

Bonds Don't Pay Well:   Many folks look at the paltry rates of return on bonds, and think they are a dead-end.  5-6% rate of return?  When you can make 10% in the market?  A bad bet, right?  Well, it depends.

For example, you buy  $5000 of ACME Corporate Bonds, which are paying 6%.  You also buy $5000 of ACME Stock, which is paying an annual dividend of 6%.  Which is a better deal?   At first, they seem the same.

But, the stock can soar in price, which it likely will, if ACME is paying a 6% dividend and the products take off and the company is profitable.  Stock prices soar when companies do well, and profits go up with companies do well.

But bonds are traded just like stocks, and here is where it gets weird.  Bond prices don't go up when the company does well - at least not far beyond their face value.  But when a company runs into trouble, the effective yield on a bond can skyrocket.  Of course, this is a reflection of the perceived risk in the company, as investors believe (often correctly) that the company might not be able to pay off the debt, and go bankrupt.

So bonds can have an effective yield rate far above their stated "coupon" value.  Of course, this increased effective rate reflects an increase in perceived risk.    But the idea that bonds are a fixed investment that pays out X% in terms of the coupon rate, is false.

You Could  Lose a Lot of Money in Bonds:  Holders of Greek Debt are finding this to be true.  But you can also lose a lot of money in stocks as well - in fact all of it, for example, if you bought GM a few years ago.  Even the Greeks are offering 50 cents on the dollar, which is a lot more than I got out of GM.

Oftentimes, debts are "worked out" this way.  For example, I discussed the Mohegan Sun, whose bonds fell so far in value that the effective rate of return skyrocketed to 240%.  The dust is still settling on that one, but the Casino is not defaulting just yet - but is offering the bondholders new bonds, when the old ones come due, at an even higher interest rate.  The interest payments would still be made, but the principal would not be paid back until 2016 (at which point, it might be extended yet again).

If the plan is approved, the bond holders are not wiped out, but continue to hold debt and collect interest.  Things could be worse.  That scenario, however, is unique, as by law, only Indian Tribe members can hold stock, so bondholders are not protected if they decide to declare bankruptcy.

But for most situations, even if the company goes bankrupt, as bond holder, you are first in line for the pickin's - and often this means stock in the new company.  Even in the GM bankruptcy, which some claim screwed the bondholders, the bondholders got 30 cents on the dollar.   And while that might sound like a screw-job on the bondholders, bear in mind that just prior to bankruptcy, you could buy GM Corporate Debt pretty cheaply - for less than 30 cents on the dollar.  Some people made out in that deal.


So are bond a good or bad deal and should you invest in them?  Yes, No, and Maybe.  First of all, they are deceptively complex.   They appear to be simple interest-bearing notes, but since they are traded like stocks, they have a market price, just like stocks, and an effective rate of return that can vary from the face value of the bond (the so-called "coupon rate" although most bonds today do not have detachable coupons).  And if you don't understand any of what I just said, you probably have no business buying bonds in the first place.

Diversification is important in any investment strategy.  And while corporate or municipal bonds, as well as U.S. Treasury debt instruments are a good adjunct to any investment portfolio, putting all of your money into them is probably a bad idea, particularly when you don't know what you are doing.

What started me on this thread was the fact that I own some GE stock and some GE corporate bonds.  The stock is in the tank right now (down 46%) while the bonds are worth 6% more than I paid for them.  GE is struggling right now (and yet, people criticize it for not paying corporate taxes!) and its huge debt load is part of that problem.   But if they did go out of business (which I obviously am betting won't happen) which do you think will be worth more - my GE stock or my GE bonds?

Get Out of the House!

Staying in your home when you are elderly can be difficult for you and a nightmare for your kids.

When old folks die, often their adult children have to clean up the messes they leave behind.  And if you decide to "stay in the family home" using a reverse mortgage or whatever, you may be leaving a mess for your kids to clean up.

During the last decade of your life, you should try to enjoy yourself as much as possible.  Get out, see things, go on those damn bus tours that Seniors seem to like.  But don't spend it cleaning gutters, falling off the ladder and breaking your hip, or worst of all, living in your own squalor, when you can't keep up with the maintenance.

There are so many good reasons to downsize and simplify your life, it isn't funny.   Less to clean, less to worry about, less to dust, less to pay for, less to worry about getting stolen or lost.  Just less - it's more.

But your kids will thank you, too.  Less for them to deal with.

I have seen a few scenarios play out, in this regard, and in each case, it either ends up being a nightmare to administer, causes bad blood among siblings, or ends up in the waste of the estate.


1.  The No-Time-For-This Kids:   I went to an estate sale one weekend.   An older couple had lived in a house in our neighborhood for a long time.   They both smoked and first one, then the other, died.  It is not atypical for married people to die within a short time of one another.

Their adult children flew out, arrange the funeral, and then held a yard sale to "clean out" the house.   Everything must go - today - as they were flying back to Albuquerque on Monday.  So everything sold, at fire sale prices.  And much more just went to the dumpster.

On Sunday, they talked to a Real Estate Agent and arranged to sell the house for close to $100,000 below market value, just to "make it go away".  The kids all had high-paying jobs out West, and were not interested in this chore.

So they walked away, leaving money on the table.  And some local investor got a good deal.   He painted over the nicotine stains on the walls, listed the home and sold it in three weeks for a hundred grand more than he paid for it.

What a waste of an Estate.


2.  Too-Much-Time-Kids:  On the opposite end of the spectrum, are the kids who are so emotionally attached to the family home and all the family heirlooms and mementos inside that they cannot bring themselves to unload any of it.  It can take them months, if not years, for them to sort through it all, piece by piece, and decide what to do with all this precious "stuff".  Much ends up in storage lockers, or overflowing their own homes - if they do not in fact move in.

In this instance, the Estate might not be "wasted" but instead of leaving behind a legacy, you've left your children an emotional nightmare to go though.  They don't want to be the ones to throw away your third grade book report.  But on the other hand, did you really expect them to save it?  And why were you saving it?

Downsizing eliminates this chore for your kids.  And makes your life easier, too!


3.  Hoarder Parents:  Of course, this leads to the next problem.    As you get older and start losing your mind (it happens, in about 50% of cases) you will likely start accumulating crap.  And in many cases, the home you leave for your kids will be a nightmare to clean up - if they do not have to clean it up while you are alive, repeatedly.

Again, this often results in a waste of the estate, as the home falls down around the elderly person living in it, as the have no money to keep up a big house.  So the house sells - usually to a local builder or developer, who remodels it and flips it - to the cheers of the neighbors, who lived with your eyesore, lo these many years.



4.  Sibling Rivalry:  Of course, as I noted in an earlier posting, leaving behind a house or houses, furniture, cars, and the like, can cause all sorts of problems for your kids, if they don't get along.   Your legacy to your children may be a bitter and long-lasting feud over your estate.

If one kid lives nearby or is Executor, he may start stealing items from the home.   Cash and jewelry go first.  If it isn't in the inventory of the estate, the other siblings will never know about it.  And then they can delay the probate for months or even years, and use the home (even rent it out and pocket the cash) and your cars and sell off, one piece at a time, your possessions.

The Estate is not "wasted" but one child is stealing it from the others.  Leaving all your crap behind makes it easier for these sorts of scenarios to play out.  And yes, it happens to all sorts of people.  The excuses and self-justifications people use to steal from siblings are very numerous.   Oftentimes, the thief will say they are doing a favor by preventing a "spendthrift" sibling from spending it all at once.   "Better I should have this money, they'd just waste it!"

Yes, people think this way, when money is involved.

So what's a better approach?  Get out of the house!  When you hit retirement age, start thinking about where you want to spend your remaining years.  Do you really want to be mowing lawns all the time?  Cleaning gutters?  Keeping a huge kitchen and four bedrooms and three bathrooms clean?  Is this how you envisioned retirement?

Because, each day you will become more frail and more weak and be able to do less and less.  And a large home turns from an asset to a liability in a real hurry.   And you can get top dollar for a home in good shape, but only "fire sale" prices on a home that is run-down and falling down.

And if you are "put in a home" after they find you babbling on the lawn (seen it!) then your house might get sold at a very discounted price, in a hurry, and your possessions scattered to the four winds.

Many parents think they are leaving an "inheritance" to their kids in the form of the family home and its contents.  But what you may be leaving to them is just a big hassle.

Do you have an heirloom you want your grandchildren to have?   Give it to your children now, rather than hope they find it after you die.  Because likely, they will toss it in a dumpster, not knowing what it was or what it was worth.

It can be liberating to give things like this away - and a good chance to interact with your children and grandchildren.

And as one oldster tells me, "I like going over to my kid's houses and visiting my possessions."    It is not like they are gone, just moved on.

Good Time To Sell Gold

Keeping valuable things around the house is never a good idea.  In an era where people will steal the copper from your air conditioner, keeping gold around is a bad idea.

A friend of mine was burglarized the other day.  She is older and widowed and has some gold jewelry she collected during her world travels.  She rarely, if ever, wears any of it.

The burglars jimmied a sliding door after seeing her leave the house, and went right for the jewelry.  She kept it in her jewelry box of course, right on her dresser.  Easy to find.

Five or ten years ago, it was worth maybe a few hundred dollars - as gold.  It was worth far more as jewelry.  Today, the melt-down value is such that it is worth a few thousand dollars - and well worth stealing.

Who stole it?  Could be a neighborhood kid.  Could be someone who came by boat (they live on the water).  Could have been a professional ring, showing up in a delivery truck looking like a pool service.   Could have been a workman who was there earlier.

Could even have been the guy who knocked on her door last week and tried to sell her an alarm system.  Yea, they do that - burglarize a home in a neighborhood and then use FEAR to come back the next week and sell alarm systems.  Seedy business.

Would an alarm system have helped?  Likely not, for several reasons.   An inexpensive alarm system could be easily defeated by disconnecting the phone line at the telco network interface box.  More expensive alarm systems, of course, use cellular phones.  But now we are talking a lot more money.

But even if not disconnected, a good burglar can go into a home, find the jewelry box, take the gold and be gone in a matter of minutes - which I suspect he/she was, even without a screaming alarm system to deal with.

Police departments, so used to false alarms, are slow to respond, and in any event, even at high speed, would take 5-10 minutes to get there.  You would have to hope the police just happened to be there when the call comes in.  And bear in mind there can be a 2-5 minute delay before the alarm company calls in the alarm.

A better idea is to not keep expensive stuff around that you are not using.  Like I said, she has this jewelry and never wears it.  So why not sell it?  Now is a good time to sell - the market is high and prices are high.  Sell it all and buy - well, buy something that you do want and will use, instead.

The sad thing is, of course, is that she will feel vulnerable and violated as a result of this burglary.  It is creepy to think of people walking around in "your" house when you are not home.  And that is the worst part of a burglary - beyond the lost goods involved.

And of course, it does make you paranoid as well.   You see some skateboarding teen punks at the 7-11 and they smile at you.  Are they being coy - and laughing behind your back?  Did they steal your stuff?  You have no way of knowing.  And this leads to bad thoughts.

It illustrates, also, why "Staying in the house" can be a bad idea for seniors.  In addition to the upkeep and maintenance of a home, it can be a scary and vulnerable place to live, when you are all alone.

Money is just an idea....

Money is just an idea - an idea of what things are worth, relative to each other.  This includes the idea of what money is worth, relative to other monies.

In the mail this morning, this missive:

Dear Robert Bell,

E*TRADE is pleased to announce the launch of forex trading. You can now trade your opinion on the U.S. dollar and other world currencies.

What an interesting quote.  You can trade your opinion on the U.S. dollar and other world currencies.  And that is all currency trading is, isn't it?   Opinions about the value of currency.

Money is not a thing.  The dollar bills are just physical placeholders for the idea of money.  But most of us never bother to think about this, convinced that when we chase after money, we are chasing after a thing.

And no, despite E*TRADE's generous offer, I have no intention of getting into the volatile world of currency trading.  That sort of thing, like commodities and options, is best left to people to trade for a living.   Amateurs can get creamed trying to play in these fields.