For The Birds

Saving for Retirement


It really shouldn't be so complicated. Recently I helped Jess sign up for her 403(b) plan at work, and it wasn't nearly as straightforward as it should have been.

The current wisdom for anyone investing in financial markets is to buy index funds. There have been so many studies and books written on this subject, I think we should finally accept that owning individual stocks and trying to time the market is a waste of effort and money, and that paying someone to do so for you (in the form of an actively managed mutual fund) is no better.

The next step after recognizing that you want to invest in index funds is to determine how much of each type of index fund you should own. There are lots of online asset allocation calculators to help you figure this out. Fortunately, many financial service companies offer target retirement funds that do this for you. Unfortunately, some of them charge way more than they should.

Jess' retirement plan only offers a select menu of Fidelity funds to choose from, which was disappointing because I tend to prefer Vanguard's funds. I thought Fidelity's target retirement fund, the Fidelity Freedom 2045, would be perfect... that is until I discovered the expense ratio on the fund is a whopping 0.83%! Now, this might not sound like much, but consider that $100k invested for 40 years at 8.00% yields $2.17m, while the same $100k at 7.17% yields $1.60m, or a difference of nearly $600,000 ($15,000 / year)! That's right: after 40 years, you'll have paid Fidelity $15,000 per year to hold onto your money for you.

I'm not saying you'll ever be able to find a fund that doesn't charge any expenses. I'm just saying that 0.83% is not as negligible as it sounds. For comparison, Vanguard's Target Retirement 2045 charges 0.21%, which would leave you with $2.01m after 40 years. The best target fund family I've seen is the Federal Thrift Savings Plan L Funds, which charges only 0.03% but, as far as I know, is only available to federal employees.

In the end, I decided to take a DIY approach and buy the components individually. Long story short (chorus: too late!) my intention was to buy 50% Spartan 500, 25% Spartan Extended, 20% Spartan International, and 5% Emerging Markets, but Jess' plan didn't have Spartan International as an option, so I settled on the Diversified International managed equity fund as a replacement. The resulting average expense ratio is 0.30% (which corresponds to $1.94m in our example). Had the Spartan International Index Fund been available, I would have gotten the average expense ratio down to 0.14% ($2.06m).
For The Birds

Stupid Quote of the Day

"The public does indeed have a very considerable interest in preserving our natural environment and especially relatively scarce whales. But it also has an interest in national defense. We are currently engaged in war, in two countries."
That was Judge Andrew Kleinfeld of the 9th U.S. Circuit Court of Appeals lifting the ban on the U.S. Navy's use of high-power sonar during training exercises off the coast of Southern California.

Since when were we fighting Iraqi and Afghan insurgents in submarines? Last I checked, Afghanistan was land-locked, and Iraq had less than 20 miles of shoreline. Are we planning on scanning for terrorists in Baghdad's swimming pools?

Special Interests: 9/11! 9/11! War! War! 9/11!
Public: Oh S%#@!! <frantically signs over rights to environmental protection, privacy, and intelligent thought>
For The Birds

(no subject)



Analysts See ‘Simply Incredible’ Shrinking of Floating Ice in the Arctic

And yet one of the first things we think about is how to get our hands on the oil underneath the melting ice:
The progressive summertime opening of the Arctic has intensified a longstanding international tug of war over shipping routes and possible oil and gas deposits beneath the Arctic Ocean seabed.

Last week, Russians planted a flag on the seabed at the North Pole. On Wednesday, Stephen Harper, the Canadian prime minister, began a tour of Canada’s Arctic holdings, pledging “to vigorously protect our Arctic sovereignty as international interest in the region increases.”
More on the flag-planting theatrics.
For The Birds

The Truth About Denial


The cover article on this week's Newsweek should be required reading for all high school students in America.
Since the late 1980s, this well-coordinated, well-funded campaign by contrarian scientists, free-market think tanks and industry has created a paralyzing fog of doubt around climate change. Through advertisements, op-eds, lobbying and media attention, greenhouse doubters (they hate being called deniers) argued first that the world is not warming; measurements indicating otherwise are flawed, they said. Then they claimed that any warming is natural, not caused by human activities. Now they contend that the looming warming will be minuscule and harmless. "They patterned what they did after the tobacco industry," says former senator Tim Wirth, who spearheaded environmental issues as an under secretary of State in the Clinton administration. "Both figured, sow enough doubt, call the science uncertain and in dispute. That's had a huge impact on both the public and Congress."
What truly amazes me is the potency of the political influence of lobbying groups that represent the interests of a minuscule part of the American population (in this case, oil and coal companies). Is this how democracy is supposed to work? Why does it seem like it's always the Republicans who favor special interests over the interests of the American public? Tobacco, oil, coal, pharmaceuticals, health insurance, the top income bracket -- they all look to the GOP to put their interests before the interests of America in the national debate and in our public policy.
For The Birds

Science Thursday: Air has mass

I remember a demonstration from one of my high school or middle school science classes that was supposed to show that air has mass. Two identical deflated balloons were tied to either end of a meterstick and then balanced from a string tied to the middle of the stick. One of the balloons was then inflated, and its end subsequently dipped lower than the end with the still empty balloon. The justification for this behavior was that the weight of the air inside the balloon made it heavier than the empty balloon, thus pulling its side down, and that was that.


Image courtesy of LDAPS


Ever since I learned about Archimedes' principle, this demonstration has really bothered me. It's supposed to be showing that air has mass, but the reasoning behind the demonstration ignores the fact that the air surrounding the balloons also has mass. The presence of the surrounding air leads to an opposing buoyancy force almost exactly canceling the weight of the air inside the balloon.

The only reason the inflated balloon drops is because the air inside is compressed and thus denser than the surrounding air. If the balloon were to lose its elasticity and expand so that the air inside was the same pressure as the air outside, two things would have changed. First, the balloon would be bigger. Second, the (now even larger) balloon would exactly balance the deflated balloon.

I think this demonstration would have been both cooler and more interesting if it had explained that the density of the compressed air was the real reason for the imbalance, rather than just leaving it at, "The air inside the balloon has weight, and pulls the balloon down."
For The Birds

(no subject)

I'm solidly in the anger phase. My hand hurts from punching the table. This is incredibly sad and completely unfair. James was both a friend and a coauthor of mine. He was easily the smartest guy in the Random Matrix Theory class I took with him, and he was only a sophomore at the time. Damn it all.



Rest in peace James. We'll miss you.
For The Birds

The Omnivore's Dilemma



(Image courtesy of Alexis Rockman)


I finally got around to reading this incredible book after the glowing recommendations of enhat and simplyjeska. If you've ever talked to anyone who has read it, you'd know that corn is in basically everything we eat. The reason for this is wonky agricultural policy that subsidizes the snot out of corn production in the US. Is this a bad thing? On face value, it didn't seem like a huge deal to me (just another market inefficiency); however, Pollan points out that because corn is so cheap, much of our other food has been or is being engineered to grow on corn rather than whatever it grew on naturally.

As a result, whenever you go to your local Shaw's and buy chicken, beef, or salmon, you're probably buying corn-fed chicken, corn-fed beef, or corn-fed salmon. Again, what's the big deal? Since these animals were not designed to subsist on a corn diet, they get sick and become infested with bacteria such as E. coli. The animals are therefore fed loads of antibiotics and growth hormones so that they quickly get to slaughter weight before dying of infection. Does this sound like healthy meat to anyone?

I had once thought that people avoided meat with antibiotics and growth hormones because they didn't want those substances in their food (this is probably also true to some extent). What I didn't realize is that it's mostly what those substances indicate that's bad rather than the substances themselves.

The animals that produced the industrially farmed meat found at Shaw's almost certainly did not lead happy lives. They live in ridiculously cramped quarters, wallowing in waste. I've felt a vague sense of guilt about eating animals for several years now, and after reading Omnivore's Dilemma, I've come to the decision that I should restrict my meat consumption to "happy" meat: animals that lived their lives similar to the way they would have chosen to live them (free-range and on a natural diet).

As to why I don't become an outright vegetarian, I'd like to claim it's because I subscribe to a utilitarian moral philosophy (a happy pig is better than no pig at all), but the truth is probably closer to social pressure and a weak will (like Pollan, I do love a good steak).

This is where Jess and I will be getting our grass-fed meat for the next six months.
For The Birds

March Prius Madness!

One of yesterday's CNN/Money Headlines: Toyota pushes Prius incentives! That must mean Prius sales are weakening, and Toyota can't seem to get rid of their unwanted hybrid inventory, right? Apparently not.



Toyota sold 19,156 Priuses in March. Compare that to Ford's sales of some of its most popular cars and SUVs: 17,065 Focuses, 15,790 Fusions, 10,915 Edges, and 12,876 Explorers. That's right: almost 50% more people bought Priuses (last redesigned in 2004) than Ford Explorers (last redesigned in 2006) last month! The Prius even compared well with the Camry (America's best selling sedan), with 1 Prius sold for every 2.2 Camrys sold (or 1 Prius for every 1.9 Accords for you Honda fans out there). Is the Prius mainstream yet?

One plausible explanation for the March demand spike is the April 1 reduction of the hybrid tax credit as it applies to Toyotas. The Prius' tax credit was slashed from $3,150 to $1,575 on October 1 last year, and fell further to $787.50 four days ago. On the other hand, there should have been a corresponding spike in September last year.

The reason for the credit reductions is this: the law specifies that after a manufacturer has sold 60,000 qualifying vehicles, the credits begin to phase out. The justification is "fairness" to automakers who were late to the hybrid party. Toyota is the only automaker that has hit the 60,000 mark so far (and it did so in June 2006). Stupid rule, huh? At the risk of repeating myself (uh oh, too late), raising gas taxes would have been a simpler, fairer, and more effective way to encourage gasoline conservation with the added bonus of not discriminating between hybrids and highly efficient regular cars.