Tuesday, May 20, 2008

Yahoo! Finance Advice for New Grads

My latest Yahoo! column gives some advice for new college grads. It's based on some things I've talked about with my sister and her friends.
There's a real challenge in writing for a beginner audience about personal finance. I think Ron Lieber did a great job with his new Your Money column in the New York Times of being simple but not simplistic, and readers seem to agree since it's on the most emailed list.

Here's his Michael Pollan-ized version of investment advice: "Index (mostly). Save a ton. Reallocate infrequently."

Or maybe even simpler: Do Less. Save More.

Next week I'll be answering economic questions from recent grads. I've been getting some great emails lately with all kinds of questions and personal dilemmas and responses.

Also, my most recent Huffington Post blog post sparked an awesome discussion with 46 comments. One of my favorites:

"This generation is going to have a much more difficult time of it. The are coming of age in a period in which America is a declining power. It is good to see that a swing toward a more progressive political stance is the outcome. It is a good thing that they want a new deal. The problem is in the 1980's the shift toward free market economic models meant that few colleges taught anything other than the free market model. There is a whole generation of economists who nothing nothing of Keynsianism. Fashioning a new deal will require some knowledge of economic models that recognize a legitimate role for government to play in the economy. Where are the architects for this new deal going to come from?"


kg79 said...

I find it a little ironic that keynsianism, the inspiration for so many of the new deal entitlements that are currently breaking our government financially, is being offered as our salvation. while its a good idea academically, its basically untennable in a democracy. running "good-times" budget surpluses is a political impossiblity. in the long term keynsianism is a euphemism for ballooning deficits....

keynsianism: yet another generational tragedy of the commons.

Anya said...

Hmm. Cities and states manage to run surpluses--New York City under Bloomberg, in 2006 a majority of states.

Why not the federal government?

kg79 said...

Most states have legal requirements to balance their budgets so the fact that they succeed once in a while shouldn't be that suprising. (http://www.ncsl.org/programs/fiscal/balreqs.htm )

I'm not arguing surpluses don't happen, just that its not politically efficient to let them exist to the extend needed for kensianism to work. The federal budget is a great example. (http://research.stlouisfed.org/fred2/data/FGDEF.txt ) From this data you do see an occasional budget surplus, but over the long run the surpluses are a fraction of the deficits and the debt surges(even as a % of GDP). Miss-spending those "good-time-surpluses" is an effective way for politicians to cement the support of their constituents.

With the mindset that a party couldn't stay in power long enough to maintain a surplus (without an opposing party proposing a much more attractive way to spend the surplus to voters), the danger of keynsianism becomes apparent: Deficits in bad times, balanced budgets in good times, and ballooning debt.

In my opinion, discipline and the humility to acknowledge the lack of it, is key to dealing with debt whether personal or national.

Anonymous said...

I'm your age (30), grew up in the same generation, and am a pretty middle of the road guy from CT who happens to be a financial advisor. Having said that, I dont agree with your investment advice your handing out to millions of readers. As an investment professional myself, The last thing I tell my young clients is to max out their 401k. Invest only up to the match (get the free money) and invest the rest privately on your own(in a Roth IRA). 401k's are very limited on fund selection and power to control your money, nevermind the fact your dialing bombay to have questions answered. Young people don't need a CFP, especially if they don't want to pay a lot in fee's like you suggest, CFP's are tenured professionals who charge accordingly and younger pro's don't have complex investment needs just starting out. Any reputable financial planning firm has advisors that are knowledgeable and compatant. Also your asset under management fee that you published of "typically 1 percent" is again wrong. Thats on the low side and most advisors charge 1.25-2%. On to the no load index funds. Where did you come up with this idea? Diversity is the key to a succesful portfolio, and limited your exposure to companies covered by 1 index is not a good idea at all, you miss out on many sectors and styles doing that. Index funds are fine as a PART of your portfolio, not the majority like your article suggests. All 20's should be fully aggresive risk tolerance and have a sizeable portion of the investments outside the US. I would stick to writing and less investment advice, leave that up to us pro's.