Friday, April 27, 2018

Maybe There's a Reason They Call it "The Lottery"

While I was writing my last post about people dying early after suffering a large financial setback (see “Death by Wealth Shock”), it occurred to me that the researchers who uncovered the phenomenon misnamed it.  “Wealth Shock” does not elicit a mental picture of someone with an empty bank account.  It sounds more to me like the condition of someone who has just unexpectedly come into a large sum of money—like a lottery winner.
 
In fact, lottery winners make perfect case studies of what happens when sudden wealth comes to someone.  We’ve all seen the pictures of smiling men and women holding a hugely oversized check in the company of state lottery officials.  What happens when they go home?
 
Jeffrey Dampier won $20 million in the Illinois lottery.  Though he unselfishly shared his wealth with family and friends, it was not enough for his sister-in-law and her boyfriend—who are now serving life sentences for kidnapping and murdering Dampier for his money.
 
Forty-six year-old Urooj Khan had the winning numbers in a $1 million drawing but didn’t live to enjoy his newfound wealth.  He dropped dead the day after winning, with an autopsy showing it was from cyanide poisoning.  There were suspects in his murder but no charges were ever brought.
 
One year after taking home $16.2 million in the Pennsylvania lottery, William Post III was $1 million in debt.  His brother was arrested for hiring a man to kill him.  And Post eventually was jailed for firing a gun toward a bill collector.  He was quoted as saying the whole affair of winning was a nightmare he wished had never happened.
 
Even people who seemed to have it all together and wanted to use their money for good fell under the lottery curse.  Jack Whittaker of West Virginia came into a whopping $315 million in a multi-state lottery.  He built churches, contributed to Christian charities, and founded the Jack Whittaker Foundation to offer food and clothing to low-income families.  But he was arrested for drunk driving and again for threatening a bartender; was sued for groping a woman; robbed twice of tens of thousands of dollars; divorced; saw his granddaughter (to whom he was giving a $2100 weekly allowance) die of a drug overdose; and finally told others he wished he’d torn up the winning ticket.
 
Nearly 70% of lottery winners end up broke in seven years or less.  Indeed, they are MORE likely to declare bankruptcy than the average American within three to five years of winning the jackpot. 
 
One winner who did manage to avoid the fate of these others told the Associated Press, “These (family and friends) are people who you’ve loved deep down, and they’re turning into vampires trying to suck the life out of me.”
 
And it’s not just lottery winners suffering from this wealth syndrome.  How about those rich sports stars?  Sports Illustrated did a study of former professional athletes and found that after only two years of retirement, 78% of NFL players were either broke or struggling financially; and within five years of retirement, 60% of NBA players were flat broke.
 
Extravagant spending?  Greedy friends and relatives?  Bad investments?  Theft and fraud?  Each case will have its own twists and turns.  But this week’s Scripture, advice from the wisest man to ever live (and who fell victim himself to great wealth), should be our own prayer.

 
Until next time,

 
Roger

 
“Keep falsehood and lies far from me; give me neither poverty nor riches, but give me only my daily bread.  Otherwise, I may have too much and disown you and say ‘Who is the Lord?’  Or I may become poor and steal, and so dishonor the name of my God.”  Proverbs 30: 8, 9 NIV®*

 *Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.

Friday, April 13, 2018

Death by Wealth Shock


Think you don’t have enough health worries?  Let me add another one: “wealth shock”.
 
Associated Press medical writer Carla K. Johnson recently reported on a study that showed middle-aged Americans who suffered a sudden, large economic setback—dubbed “wealth shock” by the researchers—were at 50% greater risk of dying in the following few years than a similar group who did not have such a loss.
 
To qualify as a wealth shock, the loss had to be a drop in net worth of 75% or more over two years or less.  The average loss among the study group was $100,000.
 
The research does not show a direct cause-and-effect relationship.  Depending on the type of loss, it may lead the victims to delay obtaining critical health care services or increase their stress levels, and those could be the real causes of early death.  But clearly, a substantial drop in net worth is not a good thing.
 
This might be especially pertinent right now as the stock market swings wildly day by day, and people start to stress over their investments after years of healthy, almost entirely uninterrupted growth.  Are we on the verge of another recession?  Are millions of us at risk of wealth shock?
 
Allow me to offer some advice to avoid that fate.
 
If you are at least five to seven years from retirement, it’s best to continue doing what you were already doing with your investments (assuming that was investing for growth of principal in a manner that fits your tolerance for risk).  There’s plenty of time to recover from even a sharp downturn in investment value; just don’t withdraw all your money from the investments and hold it until the market recovers.  That equates to selling low and buying high, a sure strategy to lose value.  And don’t check your balance everyday.  It only causes stress.  I rarely checked my retirement account balance during the Great Recession.  I’ve been checking very regularly over the last year as the market marched upward.  It was exciting, in a good way.  But I’ve stopped that now.
 
If you are less than five years from retirement and haven’t already moved a portion of your retirement funds into a safe place like a certificate of deposit or money market fund within an Individual Retirement Account or your 401(k), gradually start doing so.  These will be the funds that will keep their value and from which you can withdraw what’s needed for the early years of retirement.  The rest can stay invested for greater growth (which, of course, comes at greater risk; but since you won’t need the money right away…).  That way you won’t have to cash out stocks—which may have lost some value per share and thus causing you to have to liquidate more shares to get the amount of money needed.
 
The key for most people will be their tolerance for risk within their investment portfolio.  I would guess that someone with a higher tolerance level would have some measure of immunity against wealth shock.  They know the risks of the investments they choose but also the possibility for growth and the magic of time in recovering from a financial blow to those investments.  Someone who doesn’t start out comfortable with the idea of being in the stock market or scares easily at market downturns would, I imagine, be at higher risk for wealth shock.  And the elderly, by virtue of being more immediately reliant on those funds, would be at the highest risk of all.  Self-awareness of your wealth shock risk factor might be your best protection.
 
Here’s to your financial and, perhaps consequentially, your physical health.

 
Until next time,

 
Roger

 
“Sleep a little.  Doze a little.  Fold your hands and twiddle your thumbs.  Suddenly, everything is gone as though it had been taken by an armed robber.”  Proverbs 6:10, 11 (CEV)

Friday, April 6, 2018

Invest Ethically?


According to some estimates, nearly one in six dollars managed by investment professionals in the United States is invested in “socially responsible” companies. 
 
Socially responsible investing (SRI) is a concept several decades old, but in recent years has attracted more adherents.  What is it, exactly? 
 
The precise definition of SRI will vary by investor.  To a Christian it may well mean avoiding companies that profit from gambling, alcohol, or tobacco.  To an environmentalist it likely entails avoiding companies producing fossil fuels or nuclear energy.  To a social justice advocate, treatment of employees or equal opportunity for women and minorities in the workplace will be factors in determining who is worthy of the investment dollars.  And a Muslim-specific fund (there are some) will have no stake in the financial industry (they don’t believe in charging interest) or pork products (shunned in their diet).  Or perhaps a single issue drives the investment decision.  Would someone not care at all about fossil fuels but care a great deal about abortion, one way or the other?  Is there a fund for that person?
 
It seems to me that at some point an SRI investor must make some tough choices.  Can he find an investment, for example, that honors both his social justice and his environmental causes?
 
Let’s take a quick look at one fund, the Vanguard FTSE Social Index Fund.  It screens out the alcohol/tobacco/pornography companies as well as those involved in nuclear energy or which have significant revenue from sales to the military.  Further, it aims to invest in companies with workplace diversity and environmental responsibility.  According to Vanguard’s website, the fund’s ten largest holdings include Wells Fargo, Apple, and Facebook.
 
I appreciate the alcohol/tobacco/pornography filter.  But look at those holdings again.  Wells Fargo was in the news last year for fraudulently creating new customer accounts.  Apple got some bad press for how they design their devices’ batteries to slow down performance after a period of time.  And Facebook?  Perhaps you are one of the 87 million users whose data was mined due to carelessness or just plain greed of the company and its leadership.  I don’t want to invest in companies that do those sorts of things.  Yet there they are in one of the most popular SRI mutual funds.
 
But the truth is I do invest in all those companies because I’m invested in a variety of mutual funds that I picked almost solely based on past, or expected future, performance.  I am well aware of the availability of "ethical investments", but I’ve not gone that direction for a couple of reasons.
 
First, I don’t expect that I could find a fund that correlated 100% with my unique set of beliefs, whether those beliefs be religious, environmental, socially just, or patriotic in origin.
 
Second, how deeply do I or can I delve into each holding within a mutual fund? Vanguard’s Social Index Fund invests in over four hundred stocks.  Even if every one of those companies met my ethical and moral values in that they did not profit from sales of tobacco, etc., how can I be certain that they don’t use their profits to support, say, abortion?  Or political candidates that vote against my beliefs?
 
You may disagree with my approach, but I just don’t bother to even try to invest “ethically”.  It would probably be a losing battle in the end, given the above.  I view it much like I do the taxes I pay.  I don’t agree with everything the government does with taxpayer money, including mine, but I pay the taxes nonetheless.  Likewise, if I declined to invest in utilities because they use nuclear energy or fossil fuels to generate electricity, would I be equally circumspect to not power my house with electricity from such a utility?  Good luck with that. 
 
Maybe you’ll even think I’m lazy for not vetting my investment options for the ethics of the companies benefiting from my investment dollars.  But my financial contribution to them is a pittance by comparison to their market value or even to my value to them as a captive consumer of their goods or services.  My concern, your concern,  is better directed to being good and trustworthy citizens, living ethically in our own spheres.
 

Until next time,

 
Roger

 
“And will not God bring about justice for His chosen ones, who cry out to Him day and night?  Will HHHe keep putting them off?  I tell you, He will see that they get justice, and quickly.  However, when the Son of man comes, will He find faith on the earth?” Luke 18: 7, 8 NIV®*

 
*Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.