August 2015 - Bankers Anonymous

August 30, 2015February 22, 2016

Getting Started – The Hardest Part of Investing

Let's start at the very beginning, a very good place to start... — Let’s start at the very beginning, a very good place to start…

School started for my girls this week, so I’m in the mood for new beginnings. New school uniforms, freshly sharpened #2 pencils, and lined notebooks still unblemished with unicorn stickers.

Besides inheritance (obviously the very best way, because remember your first $5.43 Million arrives tax free!) the next two best ways for a person to get wealthy are investing throughout your lifetime, and starting a business.[1]

Neither of these two methods – slow-and-steady investing beginning at a young age or entrepreneurship – require extraordinary talent or prior knowledge. In fact, the biggest common barrier to both methods is simply getting started.

But how does one even do that? Let’s not under-estimate the difficulty of the “getting started” part!

“Let’s start at the very beginning, a very good place to start,” sings my children’s favorite nanny-from-the-movies, Maria.

I have a reader who regularly emails me to the effect (I’m paraphrasing a bunch of his emails) “You need to tell everybody – especially young people – how to call up a brokerage company and how to buy their first stock or mutual fund. They don’t need special knowledge, they just need to get started now, contribute regularly, and never sell. And they’ll end up rich.”

Of course he’s right. You should all totally do this.[2]

Even so, many will resist the advice.

discount_brokerage_firms — A managerie of discount brokers. Sadly, none of them pay me to list their brands

My question back to my reader: How do we get people to start at the very beginning, that very good place to start?

I really don’t know how to fulfill my reader’s wish of inducing people to call up a brokerage firm, open up an account, and buy their first stock or mutual fund. I wish I had the words to express the importance of beginning, like, right now.

famous_goethe_quote_beginning — Goethe didn’t really say this, but…

The German writer Johann Wolfgang von Goethe didn’t really say, but sometimes gets credit for, this inspirational thought:

“Until one is committed, there is hesitancy … the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can do, begin it. Boldness has a genius, power, and magic in it. Begin it now.”

Pseudo-Goethe is very mystical and awesome, but do you want to know what else has “genius, power, and magic” in it? Compound interest! That’s my personal favorite finance topic – and the reason why a lifetime of boring, simple, investing begun in your twenties will make anyone, eventually, wealthy.

My friend David is a 26 year-old public school administrator who recently asked me for financial advice. Like almost everyone his age, David has both student-loans and personal debts. Unlike many his age, he also has the beginnings of both an IRA plan and a 403b plan. He worries about his debts and has kept me updated over the past few months as he pays them down. What I know for sure – and he doesn’t yet fully believe – is that if he continues to contribute to his IRA and 403b, year in and year out, he’s going to end up just fine. Wealthy even.

Simply because he started now, while still in his twenties. (So start now!)

David’s initial $5,500 in his IRA this year, compounding at an assumed 6% annual growth over the next 40 years until age 65, should grow to $56,571.

His annual contributions of $5,500 each year, for the next 40 years, compounding at an assumed 6% growth rate, should grow to a total of $902,262.

That, combined with an employer-matched 403b and teacher pensions plans, should provide David plenty of comfort when he stops working.

But compound interest works best over long periods of time, which means you have to begin now.

To people who wonder – “given all the risks today and all the ups and downs – when should I invest in the stock market?”

The true answer, always, is about thirty years ago.[3]

But the next best answer, for anyone not already in the market is always:

Now. Today.

The hard part: Beginning. Remember that beginning has genius, power, and magic in it.

[1] Another method, rising to the top executive echelons of someone else’s company, requires an unusual combination of talent, hard-work, and luck. In the past few decades the rewards for ‘super-managers’ who did not start out as business owners have been great. But I think the odds are stacked against most people being able to ‘make it’ that way, when compared to simply investing, or starting your own business.

[2] Although I can’t tell you which brokerage to call (because none of them pay me. If you work at the marketing firm of a big retail brokerage firm, it’s you guys who are really the best of the best and my readers deserve to know that. Here, let me send you my PayPal account.)

[3] Just like the truly best way to get wealthy would be via inheritance. But the best way, in both cases, is impossible to do for oneself.

Please see subsequent post:

Getting Started With A Business

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August 24, 2015August 24, 2015

What To Do If The Market Crashes – Your Emergency Instructions

I think the Dow being down 1,000 points at the market open this morning (however temporarily) puts everyone in the frame of mind. Is this THE BIG ONE? Should I break the glass and read the instructions in the envelope labelled ‘IN CASE OF EMERGENCY?’

Sure, go ahead, you have my permission. Break the glass. Easy now. Watch your knuckles and wrists don’t get slashed. That stuff’s sharp. Ok, now, gently, carefully, extract the envelope. Very good.

It is labelled ‘IN CASE OF EMERGENCY,’ so go ahead and open up that bad boy. I wrote it just for you.

For just this situation: I mean, Greece is a kick-the-can-down-the-road catastrophe. Is any financial number out of China even real? Chinese investors obviously don’t think so, with limit-down market days a regular occurrence. Oil’s in a race-to-the-bottom as a result of the Saudi’s aggressive dumping, which would have been great if the US hadn’t just become the world’s biggest oil play in the past 4 years. US Presidential candidate choices cover the entire range from Family Oligarchy to Buffoonery. Stocks have moved one way toward ‘priced for perfection’ nosebleed valuations since 2011. For that matter, so are bonds. And the Fed’s still planning (as far we know, and, as of today, at least) to take away the punch bowl of cheap money in September. I mean, panic, right?

Let’s see what the instructions say….

PANIC! SELL! SELL! SELL! ¹

(just kidding. That’s not the real instructions)

Ok, what are the real instructions? Here they are:

“1. Do Nothing

2. If you’re having trouble following directions, go back to Step 1.

Thank you for reading these emergency instructions. Good luck.”

That’s what the envelope that I left behind the glass says.

—-

Ok, but, if you absolutely MUST do something, and you can’t sit on your hands – because you’re panicked and you managed to invest some money for your kid’s college fund or you actually have money socked away in a retirement plan and a 1,000 point DOW drop would keep you working eight more years on the job or whatever – if you have to take action, then I recommend the following, which I learned (I think) from a newspaper column by Jonathan Clements, author of the excellent 25 Myths You’ve Got To Avoid If You Want To Manage Your Money Right. Or maybe it was Jason Zweig, or James Stewart. I’m not sure. Anyway, it doesn’t matter.

The point is, take some symbolic but affordable amount of money ($100, $500, $2,000, $500,000? Everyone’s different) and transfer it to your brokerage account today, and buy some broad stock market mutual fund. It doesn’t really matter the amount, and it doesn’t really matter what fund.² Just something symbolic. And write down your amount invested, and the level of the broad index (like the S&P500 for example). Then you can revisit it at a later date.

Like I’m doing right now. Because, during the 2008 Crisis, I did this three times and it made me feel better.³

October 8 2008, I sent $250 extra to my daughter’s 529 account. Pow! S&P 500 at 900! Down 38% Year to Date!

October 23, 2008, I sent another $250 extra to my daughter’s 529 account. Biff! S&P500 at 875! Down 41% Year to Date!

March 3, 2009, I sent another $725 extra to her 529 account. Smack! S&P500 at 725! Down 50% since the beginning of 2008!

It shows you are fearless. It shows you are a long-term investor. It shows you know how to buy low and sell high (or better yet, sell never.)

Of course, I had no idea whether, when, or if the market would begin to recover in 2 weeks (it did), 2 years, or 10 years. I mean, things looked grim. But psychologically, I think my little purchases were helpful in making me feel less panicked.

So that’s my real advice on a day or month like this.

Please see related post:

How To Invest

Volatility In The Stock Market: That’s A Good Thing

Book Review: 25 Myths You’ve Got To Avoid If You Want To Manage Your Money Right by Jonathan Clements

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When we were about 13 years old, a childhood friend as a lark used to walk past phonebooths on the street and just pick up the receiver a suddenly start shouting “Sell! Sell! Sell! I said Sell Godammit!” We always thought this was hilarious. It still kind of is. But I know what you’re thinking: What are phonebooths? ↩
I wouldn’t recommend an individual stock because, man, you could really get cut on a falling knife this week ↩
Granted, not a lot better since my business sunk during this time, but at least I felt better about my kid’s college fund. ↩

August 23, 2015

Minimum Wage Caveats and Local Update

I recently wrote about how I worried minimum wage hikes in the city of Los Angeles could hurt the same people the law is supposed to help.

Two caveats go with that thought. First, I might be wrong. Second, San Antonio is already in the midst of a distinct minimum wage hike that deserves some context and background explanation.

I might be wrong
Anecdotally, I think my reasoning against private-sector minimum wage hikes is solid, but experts don’t necessarily agree with me.

Economists who have studied the issue argue that historic data in the U.S. does not agree with my fear of increased unemployment, noting evidence showing little effect on unemployment rates with moderate changes in the minimum wage.

Those economic studies, however, covered wage increases of approximately 10 percent — rather than the Los Angeles hike of nearly 60 percent. In addition, economists typically have studied federal minimum wage law changes, not municipal changes that create the “wage island” effect. So, although economists’ data doesn’t support my view, it typically covers a different set of conditions.

Supporters of minimum wage laws also make two compelling arguments.

First, they note that better-paid minimum workers tend to spend such a high proportion of their incomes that wage hikes actually stimulate the local economy through higher consumer spending, creating more overall wealth.

Second, wage hike supporters argue that stagnant wages over the past four decades in the U.S. — especially considering increases in worker productivity — mean that wages for the bottom of the labor market could rise quite a bit before they dampen economic growth.

These are fine points. I continue to hew to the muddled middle when it comes to private-sector minimum wage hikes.

Interestingly, the Los Angeles Times quotes L.A. Councilman Paul Koretz, who admitted uncertainty after his vote: “This is an experiment. If anyone tells you they know exactly how this is going to go … they’re not being honest with you.”

I like that.

Public-sector wage hike
It turns out that San Antonio’s two governments — city and county — currently plan similar-sounding, but distinct, minimum wage hikes, up from $11.47 to $13 an hour.

The San Antonio and Bexar County plans differ from Los Angeles’ law because it limits the minimum wage hike to employees of the governments themselves, not employees of private companies.

Bexar County announced earlier in the year that government employees would earn at least $13 an hour beginning Oct. 1. In addition, under the city’s currently proposed budget — to be voted on in September — city workers at the bottom of the pay scale would see their pay raise go into effect next January.

Local advocacy group COPS/Metro Alliance successfully pursued raising minimum wages for city and county workers over the past year. They raised with government leaders the issue of a “living wage” for government employees, arguing that workers should reasonably expect to earn enough at their jobs to be free of public-sector subsidies tied to poverty programs, such as food stamps.

Mike Phillips — a leader with COPS/Metro with First Unitarian Universalist Church — estimates the wage hike could help not just the 1,700 city and county workers directly affected, but perhaps twice as many workers who already have wages above the minimum, as those workers see their pay adjusted higher as well.

Over time, Phillips says, COPS/Metro would like to see the $13-an-hour minimum stepped up to $15 an hour, by 2018.

Public, not private sector
The San Antonio wage hike, compared to the Los Angeles plan, cannot lead to greater unemployment for a number of reasons. For starters, government workers generally cannot be “outsourced” to areas beyond city or county limits, nor completely offshored, as I feared with the Los Angeles situation.

Perhaps most importantly, public employers have a greater obligation to address the moral issue of “a living wage” than do private employers. Unlike private companies, public entities (such as governments) explicitly purport to represent the “public good” in everything they do. The public good should reasonably include paying workers so that they can live above the federal poverty level.

Nobody really asked my opinion but these wage hikes seem not only reasonable, but providing a “living wage” for public-sector employees seems like an essential step.

Steep obstacles in Texas
Minimum wage advocates may be winning battles across the country, but they face steep obstacles in Texas.

San Antonio state Rep. Trey Martinez Fischer unsuccessfully attempted in the last Texas legislative session to bring to voters a state minimum wage of $10.10 per hour, up from the federal $7.25 minimum. He had to attempt a statewide public vote via a constitutional amendment because otherwise the state Legislature has the power to set (or not set) the private-sector minimum.

For now, Texas remains one of the states with the federal minimum of $7.25 per hour.

Dallas County workers currently receive a minimum of $10 per hour, and county lawmakers attempted last year to extend that wage floor to government contractors. In December, while still attorney general, Gov. Greg Abbott blocked that attempt.

Meanwhile in Bexar County, COPS/ Metro still is working on extending the $13 per hour wage to hospital employees and school districts.

I asked COPS/Metro’s Phillips if he envisioned a private-sector minimum wage campaign in San Antonio or the state of Texas.

His response: “We don’t tilt against windmills if we can help it. It doesn’t seem realistic.”

A version of this post ran in the San Antonio Express News.

Please see related posts:

Los Angeles minimum wage hike seems risky

Inequality in America – Video representation

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August 17, 2015

Minimum Wage – Reasons To Be Cautious

Los Angeles celebrates a minimum wage hike

I’m not a mean-spirited person (at least not after I’ve had my morning coffee) but I worry that writing about recent minimum wage law changes could lead some friends to accuse me of heartlessness. I don’t mean to be heartless.

The Los Angeles City Council recently voted 14-1 to raise the employee minimum wage in the city to $15 an hour, up from $9 an hour, in a gradual phase-in through the year 2020.

Meanwhile, New York City raised the minimum wage hike for fast food restaurant workers. Minimum wage hikes are ‘in the air’ as an urban policy idea nationwide.

While I don’t doubt the excellent intentions of the Los Angeles city council and their supporters, my immediate finance-guy reaction is to suspect that the minimum wage hike will leave many of the intended beneficiaries of this law worse off.

Wage island problem

Passing a private sector minimum wage law in a limited area – like within a single city’s boundaries – seems to me an invitation to employers to move businesses just outside city limits, or to consider starting businesses away from high-wage cities.

Minimum_Wage_Cities — Minimum Wage Cities

I know if I were an entrepreneur in Los Angeles this law might make me more likely to look to build or grow my business away from the city.

Clearly some service industries like retail stores and restaurants that depend on urban density cannot relocate away from a higher-wage area like Los Angeles.

But many other types of businesses can relocate to outside of a city limit, or can be started away from a city.

Most vulnerable workers

Employees with experience and specialized skills have significant leverage when setting their pay. Employers often complain that they cannot find enough skilled workers to fill their company’s needs.

Employees seeking a minimum wage job, by contrast, lack specialized skills or relevant experience unique for their job. They might be too young to have worked much, or they might lack desirable educational degrees. If they are older workers, they may have a checkered employment history or background. Employees seeking minimum wage work need a chance to build up experience or a track record to prove their worth to an employer. The minimum wage job could (and should) be the entry-level step, an on-ramp to higher skills and higher pay.

I’ve been an employer and an entrepreneur, and one of the scariest things for a small business is hiring new employees. Before the employee starts, you don’t how it all will work out. New hires, in fact, often don’t work out. You end up losing time, money and resources with new employees, in addition to suffering a spike in unemployment insurance rates for your business.

As an employer in Los Angeles, I might go to great lengths to avoid hiring an unskilled, untested worker at $15 an hour, compared to the federal minimum wage of $7.25 per hour.

I would hire fewer people, more reluctantly. I would lean on my proven, experienced workers more. I would seek to substitute automated processes for human processes. I would figure out a way to get by on fewer workers, because of the clear difference in my bottom line survival as a business.

Multiply that effort by tens of thousands of employers and I think you’ve got the makings for many fewer entry-level job opportunities in a high minimum wage area. I think you’ve got the making of higher unemployment rates in Los Angeles compared to outside the city.

Leap of Logic

Forgive me for the following leap of logic, in which I mention an extremely complex economic situation and simplify it for my purposes, but I think it relevant to mention that France’s official unemployment rate hovers above 10%. In a related story, France’s minimum wage is approximately three times higher than in the US, according to Thomas Piketty, the author of Capital In The Twenty-First Century.

Of course that’s not the whole story. There are undoubtedly many reasons for structural differences in France’s unemployment rate when compared to the United States’ rate, currently a little over 5%. But most people would agree that they have something to do with the well-intentioned worker protections in place in France. Those worker protections – which include minimum wages, in addition to rules about firing, and the social safety net – have great effects on both employee and employer behavior.

If you talk to an employer in France, they will describe their extreme reluctance to hire anyone, because of these protections.

Unintended consequences

The goal of minimum wage laws is to ensure better living conditions for the most vulnerable workers in an economy, by definition folks earning the least amount of money per hour that an employer may legally pay. But if the result is fewer jobs for that most vulnerable population, then is the law hurting or helping?

3.8 million people live in Los Angeles, with an estimated 800,000 affected by this change in the law. Each 1 percent increase in the unemployment rate among that population could mean 8,000 fewer people with any job at all.

Those 8,000 would be the most hurt by this minimum wage hike with only a 1% rise in unemployment. A move to France-like unemployment rates would mean 40,000 people in the Los Angeles area without a job. While that’s too extreme an effect to be likely, I do worry that well-intentioned city policy hurts the very people it’s meant to help.

You know what’s another possibility though? I’m totally wrong. I’ll discuss that, as well as San Antonio’s current proposal regarding minimum wages, in a subsequent column.

A version of this post appeared in the San Antonio Express News.

Please see upcoming post on

San Antonio’s minimum wage for government workers

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August 10, 2015August 10, 2015

Clinton Proposal on Capital Gains Tax: I Like It

I’ve written before about carried interest taxes, estate taxes, and real estate tax policy using the contrasting lens of what is ‘fair to me,’ (typically, If I don’t have to pay it, it’s fair to me) versus what is ‘fair to society,’ (My attempt to take the broad view, even if it hurts me personally.)

Another common way of thinking about tax policy – today’s way – would be to think specifically about what behaviors the policy would encourage and discourage.

Now, I understand you may resent the idea that Big Brother imposes its will on you via tax policy. I don’t have a big problem with it myself. The way I figure it, behavior-modification is one of the main things that determine good or bad tax policy.

My state and local governments already discourage me from using tobacco and gasoline through targeted sales taxes on those products. The federal government discourages me from working for a living through income tax policy. In addition, the federal government encourages me to be born into a wealthy family via the $5.43 million estate tax exemption.[1] All of these behavior modifications are just part and parcel of tax policy, forming part of what we use to think about what makes for a good or bad tax.

Democratic Party candidate Hillary Clinton recently proposed behavior modification through changes in the capital gains tax.

I expect I’ll have plenty of critical things to say in the future about Clinton as she moves from candidate to President, but I actually dig this proposal.

Before getting into her tax proposal, however, I’m troubled by the insufficiency of the title I just used, “Democratic-Party candidate.” Because she is far, far more important than that title implies.

Can we instead go with something like “Hillary Stormborn, First Lady of the House of Clinton, Democratic Senator from New York, Secretary of State, Encourager of Benghazi Jihadists, Webmaster of Clinton.com, Queen from Across the Narrow Sea, First of the Andals, and Unburnt Mother of Dragons?”

I think that about covers all of her past experiences accurately, no?

Anyway, back to tax policy.

Clinton’s campaign proposes capital gains tax changes for the highest income tax bracket that would step down each year that an investor holds securities.

Currently, taxpayers in the highest tax bracket pay 39.6% in taxes on gains for securities held less than a year, and 20% for holdings held longer than that. Taxpayers in lower tax brackets currently pay their regular income tax rate for holding securities less than a year, then 15% for anything held longer than one year.

Clinton’s proposals would incrementally lower the capital gains tax rate on the highest taxpayers, for each year that those investors hold securities. The tax rate on capital gains would drop to 36% by year 2, then step down to 32%, 28%, 24%, and finally to 20% by year 6.

Have I lost you yet? I’m not trying to. Here’s the deal. If you make a lot of money each year, the Clinton proposal would encourage you, via tax incentives, to hold on to securities for a long time horizon, of at least six years or more.

This behavior modification tax has two explicit targets. The first target is investors, who would be rewarded for holding stocks for six years or more. If investors find they can lower their taxes by holding stocks for a longer amount of time, they likely will approach stock ownership with a greater emphasis on long-term wealth creation.

The second target is public-company managers.

“It’s time to start measuring value in terms of years – or the next decade – not just next quarter,” she announced in her speech proposing these changes, according to the Wall Street Journal.

Longer-term investors, the idea seems to be, will encourage longer-term thinking among the management of public companies. Without the pressure to perform on a quarterly basis, maybe, public companies will avoid short-termism in their decision-making.

By the Clinton campaign’s own telling, the capital gains tax modification would not raise much additional federal revenue.

One reason is that her proposal only affects investors already in the highest tax bracket, earning above $464,850 for married couples, or $411,500 for singles, or somewhat fewer than 1% of all income earners in the United States.

The second reason this would raise limited revenue is that many investors hold a majority of their investments in tax-protected accounts such as IRA and 401Ks, Investors do not need to pay taxes on capital gains on securities held within these accounts.

So again, the entire point of this is behavior modification, not revenue generation. If you already hate behavior modification via tax policy, you’re not going to like this idea as much as I do.

Since I feel so strongly that the correct time horizon for equity investments falls somewhere in the range between five years and forever, I think Clinton’s on to something good here in encouraging a six-year minimum holding period for securities, via tax policy.

One criticism I have of the proposal is that it doesn’t apply to the bottom 99% of earners. Since the point here is behavior modification of both investors and public company managers, I don’t see why the rules wouldn’t equally attempt to modify their behavior as well.

Everybody should have a six-year-or-greater time horizon with their investments, so everybody should be subject to the rule.

Please see related posts on taxes:

Can we have an adult conversation about income tax policy?

Real estate tax – Agriculture exemption rant

Carried interest tax rant #1

Carried interest tax rant #2

Estate taxes

[1] Think about it: Heavy taxes on income if you work to earn it, but a tax free $5.43 million if it comes from Daddy!

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August 3, 2015August 3, 2015

Never Buy A Boat

I just returned to San Antonio from vacation with my family on Cape Cod, where my daughters and I gratefully survived an afternoon excursion on my brother’s boat.

Our survival requires a bit of explanation.

As you’ve come to expect, my tale has a pithy moral and financial lesson at the end.

In the summer-oriented village on Cape Cod where I grew up, there are only two types of families: Tennis families and boating families. We were the former. Meaning, we could wield a Wilson Pro Staff on clay like Excalibur, but give us the main sail in a quiet harbor and we’d run the bow straight into a dock, probably tangling up everybody’s fahkin’ lobstah pots in the process.

I recall this family history because my brother shockingly transgressed the sacred Tennis Family/Boat Family divide four years ago: He bought an 18-foot Boston Whaler, an ‘unsinkable’ vessel common to these parts.

I put ‘unsinkable’ in quotes because he nearly drowned the whole family shortly after we left the harbor.

As a finance guy, a part of my brain began to calculate the per-hour cost of boat ownership, even as we gunned the engine out of the harbor at top speed, slapping the hull from wave-top to wave-top. (Yes, I know, this is the part of my brain where fun goes to die.)

My daughters seemed to enjoy the brutal bouncing over the choppy waves well enough.

For my part, I white-knuckled the ride out. Does my brother really know how to drive this thing? Will we hit a rogue wave and my five year-old will just bounce up and over the side? Also, do I detect the distinct smell of burning money?

A close call

By his own telling, my brother hardly knows what most of the buttons on the dashboard to his Whaler do. Once out on the bay he (inadvertently I guess?) pressed a button for automatically filling up the hull with fresh sea water, (intended, we later learned, to preserve newly caught fish, but what did we know?) but he neglected to put in place the ‘stopper.’ Ocean water poured in around everyone’s feet. A hurried dash for the safety of the harbor followed. Only when we reached the guys on the dock – to complain bitterly to them about some defective hole in the bottom of the boat – did we learn that there’s a button to control the inflow and outflow of seawater. So, yeah.

Now, as I mentioned already, boat ownership and a death-defying expedition like this offer important moral and financial lessons for all of us about what not to do.

Of course, the unforgivable sin isn’t so much the near boat-sinking part. We had life vests. Nor is the central issue my brother crossing over the Tennis/Boat family borderline, as radical as that undoubtedly must sound to all of you. No, for me as the finance guy, it’s the cost of this damned thing.

boston_whaler — Note: Not my actual terrified family, just a Google image

I know roughly what he paid for it. I know more or less what he pays for storage at the harbor throughout the year. There’s the Spring and Fall mandatory maintenance costs, prep for the Summer season (about three months long) and Winter in storage (about nine months). Plus fuel, insurance, and tips for the harbor guys.

Here’s one of the problems: my brother can’t use it very often. The season on Cape Cod only lasts a few months. It’s only fun in a Whaler if you can go with other people, but that’s not easily arranged. His son gets motion sickness and refuses to step on the boat.

I noticed my brother’s Whaler dashboard showed 44 hours of use since he bought it four years ago. Then I calculated the per-hour costs of boating because – as I mentioned – I hate fun. I don’t know if you know this, but boating is an expensive activity. It’s a bit like golf, only if golf cost 100 times more per hour. Seriously. I did the math and everything.

The Lesson

The financial point here is two-fold.

First, obviously, never ever buy a boat.

on_a_boat — Never thought I’d be on a boat…

A yacht-owner of my acquaintance once told me he rued the day his childhood best friend introduced him to the joys of boating. “One of the most expensive decisions of my life,” says the yacht-owner.

When it comes to boats, that’s the rule, not the exception.

Boat ownership is like taking out your net worth into the open ocean, weighing it down with stones, and making it walk the plank. Boat ownership is like wadding up a tightly packed cannonball of all your $100 bills and firing it at Old Ironsides. Buying a boat is like sending your life’s savings into the Bermuda Triangle in the midst of hurricane season.

Be the First Mate

But what if you really love being out on water? The best strategy there is to find a friend or a relative who has a boat, and be the go-to First Mate for their boating needs. The boat owner – desperate because his son never wants to go with him, or his wife doesn’t really love wake-boarding, or there’s only so many hours of silent beer-drinking-while-staring-at-the-horizon his friends can handle – will always invite you out.

As that go-to friend you’ll get all the benefits and none of the costs of boat ownership. What I’m trying to say is I think being a boat-mooching hanger-on can be a really smart financial decision.

The second more general lesson – applicable to all manner of financial situations – Don’t buy into something you really don’t understand.

You’ll end up like my brother, stabbing at buttons on the instrument panel, nearly drowning your relatives on a calm day just outside the harbor.

A version of this ran in the San Antonio Express News.

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