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A Proper Perspective of Industry Bailout

03.26.2012 by Matt Jabs //

I’m rereading Economics In One Lesson by Henry Hazlitt – an absolute must read.

I was compelled to share his explanation of industry bailouts to shed light on a topic that has stolen the wealth of the American people.

This is an excerpt from the book concerning the bailout of The X industry (any industry).

After showing how a bailout of The X industry can only be done at the expense of all other industries, Hazlitt goes on to say…

Similar results would follow any attempt to save the X industry by a direct subsidy out of the public till. This would be nothing more than a transfer of wealth or income to the X industry. The taxpayers would lose precisely as much as the people in the X industry gained. The great advantage of a subsidy, indeed, from the standpoint of the public, is that it makes this fact so clear. There is far less opportunity fro the intellectual obfuscation that accompanies arguments for tariffs, minimum-price fixing, or monopolistic exclusion.

It is obvious in the case of a subsidy that the taxpayers must lose precisely as much as the X industry gains. It should be equally clear that, as a consequence, other industries must lose what the X industry gains. They must pay part of the taxes that are used to support the X industry. And consumers, because they are taxed to support the X industry, will have that much less income left with which to buy other things. The result must be that other industries on the average must be smaller than otherwise in order that the X industry may be larger.

But the result of this subsidy is not merely that there has been a transfer of wealth or income, or that other industries have shrunk in the aggregate as much as the X industry has expanded. The result is also (and this is where the net loss comes in to the nation considered as a unit) that capital and labor are driven out of industries in which they are more efficiently employed to be diverted to an industry in which they are less efficiently employed. Less wealth is created. The average standard of living is lowered compared with what it would have been.

These results are virtually inherent, in fact, in the very arguments put forward to subsidize the X industry. The X industry is shrinking or dying by the contention of its friends. Why, it may be asked, should it be kept alive by artificial respiration? The idea that an expanding economy implies that all industries must be simultaneously expanding is a profound error. In order that new industries may grow fast enough it is necessary that some old industries should be allowed to shrink or die. They must do this in order to release the necessary capital and labor for the new industries. If we had tried to keep the horse-and-buggy trade artificially alive we should have slowed down the growth of the automobile industry and all the trades dependent on it. We should have lowered the production of wealth and retarded economic and scientific progress.

We do the same thing, however, when we try to prevent any industry from dying in order to protect the labor already trained or the capital already invested in it. Paradoxical as it may seem to some, it is just as necessary to the health of a dynamic economy that dying industries be allowed to die as that growing industries be allowed to grow. The first process is essential to the second. It is as foolish to try to preserve obsolescent industries as to try to preserve obsolescent methods of production: this is often, in fact, merely two ways of describing the same thing. Improved methods of production must constantly supplant obsolete methods, if both old needs and new wants are to be filled by better commodities and better means.

Hazlitt goes on to explain how nearly all forms of government interference in the free markets are harmful, and he does so with such ease and clarity.

The book is easy to understand and fun to read; which is saying a lot for an economics book.

It’s a must read for anyone looking to understand the desperate situation our economy is in after a century of increased bureaucratic interference. It should also be required reading for anyone looking to serve in public office.

Check if your local library has a copy or buy it on Amazon.

*******

Resources and further reading

“I strongly recommend that every American acquire some basic knowledge of economics, monetary policy, and the intersection of politics with the economy. No formal classroom is required; a desire to read and learn will suffice. There are countless important books to consider, but the following are an excellent starting point: The Law by Frédéric Bastiat; Economics in One Lesson by Henry Hazlitt; What has Government Done to our Money? by Murray Rothbard; The Road to Serfdom by Friedrich Hayek; and Economics for Real People by Gene Callahan.

If you simply read and comprehend these relatively short texts, you will know far more than most educated people about economics and government. You certainly will develop a far greater understanding of how supposedly benevolent government policies destroy prosperity. If you care about the future of this country, arm yourself with knowledge and fight back against economic ignorance. We disregard economics and history at our own peril.”

– Ron Paul, Representative from Texas

Categories // Reviews Tags // books, economics, government

Betterment Review [Great Investment Option for Beginners]

01.16.2012 by Matt Jabs //

Betterment $25 BonusBetterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements and no transaction fees. Simply open an account with at least $250 to claim your $25 bonus.

Betterment review for beginning investors

Betterment Founder and CEO Jon Stein shares his motives behind creating a smart investment account that’s easy to use.

“I created Betterment because after years working in financial services I was amazed that no one made saving and investing money as simple as it ought to be.”  – Jon Stein

As a relatively new investor myself, I have spent the last few years scouring the online investing market for high return investments that are effective, easy to understand, and simple to maintain.  While there are no shortage of options out there… many of us are either too busy to design and maintain our own portfolio or we’re simply unsure of how to best do it.  Enter Betterment.com.

Betterment has found an awesome way to help us save and invest simply and effectively.  They allow you to easily diversify your portfolio – and – save for your goals.  They reinvest gains and rebalance your portfolio automatically based on your personal risk assessment, which you can set up and change with a few clicks of your mouse.  You have the ability to save for the long term or short term which is handy, especially since our “high yield” savings accounts are currently paying averages of less than of 1%!

Let’s examine more of the technical details that make Betterment a secure and attractive option for new, existing, and busy investors alike.

  • Betterment is both a registered investment advisor and a registered broker dealer.
  • Accounts are SIPC protected (up to $500,000 per customer) against losses resulting from fraud or mismanagement.
  • Your Betterment account links to your bank account for easy transfers, and seamlessly invests your money in smart ETF stocks and Treasury bonds.
  • There is no minimum balance requirement.
  • Transfers and trades are always free.

Betterment invests in ETFs

Betterment blends your investments between ETF baskets of stocks and treasury bonds.  The treasury bonds serve as the low risk investment and are backed by the full faith and credit of the U.S. Government.  The Betterment stock market portfolio is a diversified basket of ETFs custom built to reflect the broad US market providing instant diversification among thousands of companies. The current mix of stock ETFs looks like this:

  • 25% VTI: Vanguard Total Stock Market
  • 25% IVE: iShares S&P 500 Value Index
  • 25% VEA: Vanguard Europe Pacific
  • 10% VWO: Vanguard Emerging Markets
  • 8% IWS: iShares Russell Midcap Value Index
  • 7% IWN: iShares Russell 2000 Value Index

The treasury bond basket consists of these ETFs:

  • 50% TIP: iShares Barclays TIPS Bond Fund
  • 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

Betterment recommends a diversified ETF stock portfolio because individual stocks are risky and expensive to trade.  Betterment is not alone in seeing the wisdom of using ETFs as an investment vehicle… many smart and savvy investors build their entire portfolio with index funds, ETFs, and Treasury bonds.  I’m one of them – not because I’m smart but because I’ve done the research!

Goals, allocation, and risk tolerance

Rather than make you read how Betterment helps investors allocate their portfolio based on their goals and risk tolerance… I can get the point across better by showing you how I did it with my own account.

Betterment $25 BonusWho should use Betterment?

Understanding who will benefit from investing with Betterment is best illustrated by an examination of the facts.

First it’s important to clarify that Betterment, like any investment account, will not be the best solution for everyone.  Beyond the obvious, we primarily need to understand who they’re competing against, what benefits they offer over their competitors, and what demographic the company is looking to serve.

Betterment’s competition

Let’s analyze who they’re up against so we can more clearly see if Betterment offers any benefits over their competitors.

As I see it, they have three main sources of competition – some stronger than others.

  1. Discount brokerage firms like Vanguard, Charles Schwab, Scottrade, eTrade, etc. who focus their efforts on individual DIY investors.
  2. Certified financial planners (advisors) who manage investments for people that typically have a lot of assets but are either too busy, have limited market know-how, or have little desire to manage their own portfolio.
  3. “High yield” savings accounts who offer investors a return on their highly liquid assets.

Let’s continue breaking this down to see if Betterment suits you.

Investing benefits Betterment offers

Key benefits that set Betterment apart from their competition include:

  1. $25 bonus to sign up – A risk free $25 bonus simply for signing up with at least $250.
  2. No minimum balance requirement – To receive comparably low fees with a financial advisor who offers complete portfolio management investors typically need to invest minimums of between $50,000 and $500,000.  If they invest less they’ll likely face higher fees or even refusal to be taken on as a client.  Betterment has no such requirement.
  3. Free trades and transfers – You never pay any fee for trading securities or transferring money to or from Betterment.  This is quite uncommon among their competition.
  4. High liquidity of investment dollars – The accessibility Betterment offers makes their investment account behave more like a bank account, whereas investment accounts with other brokers have minimums, lock up your money for a certain amount of time, or may charge on both sides of every trade.  Put another way… Betterment allows you easy access to your money when you need it without penalty or fee.
  5. Potential for much higher returns than your savings account – “High yield” savings accounts earn the rate the bank pays (currently about 1%).  Investing in stocks and bonds with Betterment delivers the possibility of earning much higher returns.
  6. Low fees for complete portfolio management – Discount brokerage firms do not offer complete portfolio management, Betterment does.

A noteworthy part of Betterment’s active management includes automatically reinvesting your gains and rebalancing your portfolio.  While it is easy to glaze over these steps and downplay their importance… reinvesting gains and staying in balance with your risk allocation are essential for investing success.  For those unfamiliar, rebalancing is simply the process of realigning the weightings of your portfolio by periodically buying or selling assets to maintain your original desired allocation.

Fees to invest online with Betterment

Note: I recently reported on how Betterment fees were lowered, the new fees are represented below.

Based on the competition and benefits offered, let’s take a look at the fee structure Betterment charges investors and compares it to their competitors.

First let’s consider what you’ll pay to purchase a targeted retirement account with a discount broker.  Vanguards targeted retirement funds currently have a really low expense ratio of  around 0.2% while the industry average for this handy investment solution is closer to 0.6% – which is not much lower than Betterment’s fee – without offering full portfolio management like Betterment.

Second let’s consider the average cost to employ the services of a certified financial planner.  Some CFPs charge commissions based on trades made – stay away from this.  Others charge a flat fee similar to the way Betterment does.  A typical asset management fee can range from 0.5% per year to 2.0% per year and is often lowered as you invest more assets with the advisor.  Most “full service” advisors will charge a blend of commissions and fees, but generally don’t do much more than what Betterment does… they just charge more.  Also, most of them have high minimum investment amounts making them less accessible to most Americans.

One other draw back to both discount brokers and financial advisors is that many times they have a limited amount of funds to choose from, whereas Betterment has the freedom to choose among many fund companies.

Now let’s look at the Betterment fee structure:

  • Balances under $10,000 = 0.35% annually
  • Balances between $10,001 and $99,999 = 0.25% annually
  • Balances over $100,000 = 0.15% annually

Fees are prorated across the entire year and charged at the end of each calendar quarter, meaning every 3 months Betterment charges 0.0375% to 0.0875% (.15 divided by 4 and .35 divided by 4 respectively) based on your average balance for the period. If you close your account and withdraw all your money before the end of a quarter you will be charged a prorated fee for only the days your money was in the account.

As an example, if you invested $10,000 today and earned a flat 10% all year you will pay just $27.50 in fees and have a final fund balance of $10,972.50 a year later.  Would you consider the $27.50 annual expense a worthwhile cost for a fully managed, diversified, and secure 9.75% return on your money?  Only you can answer that question.

If you cannot afford to invest $10,000 and do not automatically fund your account with at least $100 each month the 0.35% annual fee is replaced by a $3 monthly fee. To easily avoid that simply set up an automatic deposit of at least $100 each month. The automatic deposit is a no-brainer since you’re committed to growing your investments anyway, and there’s no point to investing if you don’t fund and grow the investments.

If this sounds like an investment solution you’d be happy with you can read more about Betterment,  open an account, and claim the $25 bonus.

Betterment $25 BonusOpen a Betterment account

If you can tie your shoes you can open a Betterment account.  The procedure takes about 5 minutes and offers a $25 sign up bonus.

Once opened they walk you through connecting to your bank account so you can fund your initial investment.  Then they help you set your invest allocation by walking you through you investment goals and risk tolerance.  After a few days you’ll be reminded to verify the two small deposit amounts transferred between your bank and Betterment, which once verified trigger the transfer of the initial deposit.

More videos to help explain Betterment.com

Betterment Founder and CEO Jon Stein on Fox News…

Open your Betterment account and take advantage of the $25 bonus – there’s no minimum balance, and transfers and trades are always free.

How I’m using Betterment

Personally, I think Betterment’s fee is quite reasonable considering the the ease of use, accessibility, and automation they provide.  I love that they have created a service that is accessible to everyone.  It’s just as easy for an average Joe to invest as it is for the wealthy – Betterment has leveled the playing field.

Initially I’m using Betterment to house a portion of my Emergency Fund.  I funded my account with $1,000 and am excited to see how my conservative allocation will perform against the 1% it was earning in my bank account.  I’m guessing it will easily outperform that benchmark!

Betterment $25 BonusA smart way for busy people to invest

Basically Betterment is a great solution for busy people, for those just getting started, and even for long time investors who don’t want to bother with it themselves but also know they don’t need to hire a certified financial planner to gain access to a diversified and managed portfolio.

If this sounds like the investment solution you’ve been looking for you can read more about Betterment and open an account if it suits you.

From Betterment.com

“There are plenty of investment products out there for active traders, the super-wealthy, and institutions, but not anything built for the doctors, lawyers, teachers, and so on who we know in our everyday lives.  Betterment is the first investment product built for people: it’s like wealth management for the rest of us.”

Betterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements and no transaction fees. Simply open an account to claim your $25 bonus.

Betterment:Smarter Investing for Busy People

Categories // Investing, Reviews, Video Tags // Betterment, emergency fund, Investing, review, Savings, video

Sell Your Crap – Make Some Money

09.22.2010 by Matt Jabs //

Sell your Crap and Turn your Clutter into Cash

That is the battle cry of Mr. Adam Baker folks.  He lives this stuff… he breaths this stuff.  If anyone can help us trim the fat of possession, it is Adam.  He has done it and is still doing it – and now his new guide Sell Your Crap can help you do it too… so read on!

Some history on Adam Baker

After years of chasing the dream of consumerism, credit, and Stuff, Adam and his wife Courtney didn’t like the direction they were headed and decided it was time for a drastic change.  Unimpressed by the status quo, they carefully inventoried their possessions, their paths, and their purpose.  All of a sudden the things that were holding them back were plain as day… too much Stuff and too much debt.  Armed with this realization they committed to free themselves by living deliberate and passionate lives of purpose.

The Baker’s sold the things they no longer wanted, cut the expenses they could do without, and focused their energies on smashing their debt.  Before long their sacrifice and hard work begat opportunity and freedom of choice.

A passion to help others

If you know Baker at all, then you know he is an inspiration to many.  Born to teach and lead, that inspiration comes from a passion to see others succeed.  For more than a year now Adam has been chronicling his battle against Stuff and debt over at ManVsDebt.com, and just yesterday released an information gem he has been slaving passionately over for months.  Sell Your Crap – A guide to help others let go of what’s holding them back, and reclaim control of their time, energy, and money from their suffocating clutter.

So what’s in the guide?

There are two different packages to choose from to help better serve the need.

Sell Your Crap – “Barebones Edition” ($37)

  • The primary Sell Your Crap guide
  • The Definitive Step-by-Step Guide to Selling Your Crap an eBay
  • $100 Effectiveness Guarantee

————————————————————————————————————

Sell Your Crap – “Clutter Crusher Edition” ($47)

  • The primary Sell Your Crap guide
  • The Definitive Step-by-Step Guide to Selling Your Crap on eBay
  • The Definitive Step-by-Step Guide to Selling Your Crap an craigslist [added value]
  • The Definitive Step-by-Step Guide to Selling Your Crap an Amazon [added value]
  • Special access to all11 Bonus Interviews [added value]
  • $100 Effectiveness Guarantee
  • 30-Day email support [Limited Time bonus]

Review forthcoming

I received this guide yesterday, and although I have not yet read through every page – I love what I have studied so far.  Beyond that, I have yet to read a piece of Adam’s writing that was not useful and entertaining… that’s just the way he writes folks.

When I am done devouring the package in its entirety and have further implemented its wisdom into my life, I will write a complete  review.

Categories // Debt, Earn Money, Reviews Tags // books, ebook, enough, money, stuff

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Content on Debt Free Adventure is for entertainment purposes only. Rates & offers from advertisers shown on this website may change without notice: please visit referenced sites for current information. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. We respect your privacy. Privacy policy.

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