SIP-n-Sketch: Self-portrait, In-Progress, 2-27-2021

SIP-n-Sketchers:

Reminder - this upcoming session will be the last with Self-Portraits. Here is my Self-Portrait in-progress:

Bill with Fat BB, in-progress

Our next project will be COVID Night Life. I will be posting a few night scenes of restaurants in Oakland and Alameda with outdoor dining. We can select the preferred subject at our next session.

CoWaBunGA 

Piedmont Community Quilt Project, 2/2021

Darlene asked me to be a guest artist for her submission to the Piedmont Community Quilt Project. Here is her entry (see if you can tell which parts I worked on and which parts Darlene worked on):

For more information about the Piedmont Community Quilt Project, you can visit this article in the Piedmont Post: http://www.piedmontportal.org/archives/announcement-things-that-matter-piedmont-art-community-quilt-project/ 

Dad's Life Hacks: No. 3 - Saving and Investing

After you get that first paycheck, one of the best advice I've received is to "pay yourself first before paying anybody else." How do you pay "yourself" first? You put some money (10%) away in your savings or investing account. For this hack, I'm going to give you very basic rules-of-thumb because it is a very big subject, and I'm not an expert. If you need more information or details, you can find numerous books on investing, you can get an app on your phone that helps you save, or you can contact a financial advisor, preferably a fiduciary who is required by law to look after your interests.

Compounding interest and time - the thing about saving any amount, even a small amount like 10%, is that interest will compound over time, exponentially. You might think "why should I save $5, it isn't worth the work". But, $5 saved at 5% interest per year will be $8 in 10 years, without doing anything. If you saved $5 per day, at the same 5% interest rate per year, will be $2,972 in 10 years, without doing anything else. Your advantage right now is that you are young and have the time to allow your savings to grow. 

Basic Strategy - The idea is to use time to your benefit. When you are young, you can accumulate your nest egg by investing in riskier, more profitable investments like stocks and mutual funds. For example, your portfolio in your 20's and 30's could be 60% stocks and mutual funds, 20% bonds, and 20% savings (cash). The reason you can take bigger risks when you're young is that you have time to recover losses in case your investments turn out bad. 

As you become more established in your lives, in your 40's and 50's, you rebalance your portfolio to more stable investments like bonds and CD's. Your portfolio could now be 40% stocks, 40% bonds, and 20% savings. During this time, you don't have as much time to recover losses from the stock market. You limit your losses by reducing your stock and mutual fund investments.

When you are about ready to retire, you transition to stable investments to provide income. Your portfolio becomes 20% stocks, 60% bonds, 20% savings. At this time, you will most likely need steady income from your portfolio and big losses in your nest egg can send you to the poor house. You still need some stocks and mutual funds in your portfolio to help you keep up with inflation.

Keep in mind - those percentages between investments are approximate and will be different for each person. It depends on how much of a risk-taker you are as a person, are you going to be OK to lose, say $5000 at one time? If you are not a big risk taker, you might stay with more stable investments and less with risky stocks.

Keep in mind - the stock market goes up and down; you only suffer losses when you sell lower than you bought. In other words, if you see the stock market drop, and your investments go down quickly, don't panic sell and lose your shirt. Stay calm, and you might be able to ride it out. If your investment is in a solid company or mutual fund, the prices will fluctuate and it might come back in value in time.

Keep in mind - you should keep in your bank at least 3-months worth of savings (3 months of your monthly salary) for emergencies and unforeseen expenses. This is a small cushion to support you in case you cannot work for any reason: illness, accidents, layoffs, etc.     

GLOSSARY

Traditional Savings accounts - The banks have savings accounts, interest is pretty low. The good feature of savings is that they are very "liquid", they can be transferred like cash. You can get your saved money anytime you need it. 

Certificate of Deposits (CD's) have a higher interest than traditional savings. However, the higher interest is offset by CD's having a set deposit length. So you can't get your money until the end of the maturity date. If you need the money immediately, you will have to pay a penalty fee to get it back.  

Bonds - loans to government agencies or companies. The interest rates are higher than CD's, but you have to keep the money in that bond for a specified amount of time, usually longer than a CD. CD's and Bonds are less liquid than cash or savings.    

Stocks and Mutual Funds - Stocks are financial pieces of a company that you can buy into. So, if you want to be a part owner of Starbucks, Tesla, or Apple, you can purchase their stocks. Mutual Funds are companies that invest in groups of other companies, usually with a strategy or target goal. So, you can have mutual funds that buy only stocks of large companies, energy companies, or real estate companies. Stocks and Mutual Funds are more liquid than bonds but it still takes a little time to get your money from selling stocks. 

Stocks of single companies are pretty risky because you are investing in only that company. If the company does great, you do great. But, if the company does poorly... You are putting eggs in one basket. If you do buy stocks in one company, try to understand what that company does or makes and be excited about its purpose. Personally, I don't buy stocks in companies only to make money - I have to like the company before I invest. 

Mutual funds are less risky because the investment is in a group of companies. So, if one company does poorly, chances are the other companies will do better and not drag down your entire investment. Mutual funds have a management team deciding which stocks to invest in, so you will have to pay a fee from your gains. Watch out for funds that have really high fees, the fees will reduce your gains. Some funds buy stocks in fixed indices, like S&P 500, so the management team doesn't make any selections. These "Index Funds" will have lower or no fees.  

IRA and 401K - Individual Retirement Accounts (IRA) are investments specifically for retirement. 401K investments are offered by companies you work for to assist in your retirement. The good thing about these accounts is that money is taken out from your paycheck and is not taxed by the government. If your accounts grow, the gains are not taxed until you take out money after you retire. Some retirement accounts, Roth IRA, are taxed now so that they are not taxed when you withdraw during retirement. There are benefits to not being taxed when you retire, when you are making no income.  

Summary - create a savings habit early and be consistent about it. If you pay yourself first, you won't even notice the amount deducted from your paycheck and that backup will help you in the future. The economy will go up and down; it's good to have a backup fund when things go bad. So, start saving now. 

As you know, I follow Mr. Money Moustache who writes a blog about FIRE - Financial Independence Retire Early. Although I don't agree with everything Mr. Money Moustache writes, he did write a very good post describing teaching his son about money. I'm linking it here in case you want another perspective: https://www.mrmoneymustache.com/2015/05/20/what-im-teaching-my-son-about-money/