Sep 28

Gold is now at $1600 per ounce. I’ve stated before, I believe it’s in bubble territory but there are those who think gold is going higher, not just a bit higher, but to $57,000 per ounce. I don’t want to link to such forecasts,  just google ‘gold to $57,000’ and you’ll find a number of articles on this.

Let’s look at how such a forecast isn’t just absurd, it’s mathematically impossible.

The total wealth in the world is approximately $125 trillion. This number is a few years old, but close enough for our purposes.

The total amount of gold mined to date is approximately 5 billion ounces, or $8 trillion at today’s price. If gold were to go to ‘only’ $25,000 per ounce the value of gold alone would be as much as everything else in the world. All stocks, cash, bonds, real estate, etc. Would it make sense that such a thing could be possible? Yet, these people sound so convincing, one wonders if they believe what they are saying, or if they are just scamming us all. Have they done the math?

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Jan 13

In the past, I’ve written about Variable Annuities and how I don’t care for them for many, many reasons.

Another product I put into a similar category is the Equity-Indexed Annuity. These are products that claim to provide “equity-like returns” with no possibility of loss. Really? Years ago, I analyzed the prospectus for one such product and found that what they called an Equity-Like return was anything but. The calculation for a given year’s return was taken by adding the 12 monthly returns, with a maximum credit of 2% in any one month. Then, if the year was positive, this was your return. The seller of this product said that in good years you could make as much as 24%, but with zero risk on the downside.

Now, in the two years, 2009 and 2010, you would think that since the index (S&P 500) rose 52% you’d have seen at least in the mid to high teens in your account, right? Hardly. You see, 13 of the 24 months were more than 2% up. In fact, four of those 13 months were over 7% to the positive, so that these 13 months of highest gain averaged 6%/mo. Since each of these months’ returns gets cut to 2%, that’s 4% * 13 or 52% skimmed off the top. The punchline is that in two excellent years, the EAI return was zero based on the crediting equation used. Now, you may ask, what about 2008? Well, zero there as well, of course. Which prompts the question – with high fees, 2%/yr or greater in most cases, and zero returns in stellar years, why botther with these products at all? Why not just stick to treasuries if you are market-phobic? Why, indeed.


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May 27

I’m back with another post on the mortgage acceleration scam by UFirst called the Money Merge Account. I continue to get comments on a number of my posts in this ongoing series, and even though I’ve moved on from the weekly updates, I’ll still add a post here and there when appropriate. This week, I was led to a YouTube Video. Success and Progress: Lunch. In case the video is taken down**, let me summarize this one minute clip. “If instead of spending $7 per day on lunch, you invest $2000/year at 6%, over a 45 year career, you will have $10 million.” Note, the video itself doesn’t mention UFirst, but it was linked from their fan page on Facebook, and the posters YouTube account references MMA. A very well done video, but one problem, the numbers above don’t come close to the claimed $10M. Before I tell you the return you’d get, I’ll share how close I got using my fingers. Remember the days before calculators, we counted on our God-given ten fingers. The rule of 72 says to take that 6% and divide into 72 to figure the number of years to double. So it takes money 12 years to double when invested at 6%. When you have a yearly deposit of the same amount each year, the lump sum figure is somewhere in between. In other words, that $2k/yr for 45 years will be equal to a lump sum invested over some number of years, certainly less than 45, it wasn’t there the whole time, but more than 0. Kind of obvious, no? I don’t know, really, every time I claim “obvious” I’m told the math is beyond mere mortals. Back to that 12. If the time-weighted average were 24 years, our $90K would double twice and we’d have $360K, if 36 years, $720K. No where near that $10M. Even if the whole $90K were invested for the full time, and then some, after 48 years it would be $1.4M, still hardly $10M. Note: The video author rounded $1750 to $2000, first claiming 250 work days per year, but then saying ‘about $2000’ per year. That’s okay. This is what discussion and ‘back of napkin’ math is about. 36 years of 6% will actually turn $90K into $733,252, a bit more than my $720K counting on finger calculation, a 2% margin of error. The punchline to this critique is that the result is nowhere near $10M, it’s actually $425,487. Still between the $360K and $720K as I guessed, until I had more computing power available, but a factor of over 20X from the agent’s claim. With nearly 600 hits on that video, one imagines that one of the hundreds of agents would catch this kind of error, or more so, that UFirst would notice it before publicizing on their blog. With claims that their software watches every penny, isn’t it a bit scary that an error of this magnitude slips by, and no agent steps up to correct it? For Pete’s sake, we are talking about being wrong by a factor of 20, I’m not splitting hairs here. The software has its own errors, already discussed in past posts. I’m shocked this scam continues. By the way, a 16% rate of return would produce nearly that $10M, but no one expects that kind of growth. No one. Call it a simple mistake by the video poster, I’ll accept that. It’s that not one of 600 viewers had any issue with it which concerns me. And also why no agent catches any mistake when they create their so-called analysis when roping in their next victim. (phone credit – Me. It’s my favorite calculator, small, portable, accurate. There are newer models available which help to make this scam look more like simple math and less like magic.)


** Eventually, it did come down. Some of the messages I left were removed, but others chimed in, and with no comment back to us, it was simply removed.

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Mar 03

My March feature article discusses Money Merge Accounts. This system came to my attention a few months back in the form of a question on a usenet newsgroup. Since then, I’ve gotten as much information as I’ve been able to uncover and am staying with my gut reaction, that if one has the money and desire to pay their mortgage off early, they would be best off doing it on their own. I’ve also spent some time and created an MMA spreadsheet which will let you enter your own number and decide for yourself. Add a comment to request a copy. If it helps you save $3500, please donate $35 to your favorite charity in my name.

In other feature articles, I’ve discussed Bi-Weekly Mortgages, and the general topic of pre-paying one’s mortgage. The larger message here is that there are many approaches to take, but whatever you choose to do needs to be in the larger context of the rest of your financial situation.

Note: I’ve added a page on the sidebar with links to sites that discuss MMA in greater detail.


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