Looks like someone needs to buy Control Your Cash: Making Money Make Sense

If you missed Part I, check here.

Dan Thompson’s arguments in Discovering Hidden Treasures are largely on point, even if he evidently hasn’t bought a starter home in some time. The hopefully titled American Recovery and Reinvestment Act is indeed a dismal failure. Our elected federal representatives spend an obscene and unsustainable amount of money. Health care isn’t so important that bureaucrats need to keep it out of the hands of profit-seekers; rather, it’s so important that profit-seekers need to keep it as far as possible from bureaucrats. If you tax people for making a lot of money, they’ll respond to the incentive by working less or moving to a more favorable jurisdiction, thus defeating the purpose of increasing their taxes in the first place.

Thompson speculates: what if our elected representatives decide that maybe 401(k)s, the tax-free boon that so many of us are counting on for retirement, should be taxed after all? Will a government really stay that true to its word – especially when that word was given to the citizenry by an almost entirely different set of politicians from a generation ago? The book’s first worthwhile sentence appears at the quarter turn:

Most families and business owners make financial decisions out of necessity rather than preparation.

That’s in the middle of a tangential reference to Thompson’s career as a competitive water skier. He follows it up with his first piece of non-obvious advice, which is not to fixate on rate of return.

Huh? Why the hell not? What should I care about if not this?

He gets to this in due time…but even the fun of pointing out examples of the author’s inability to write gets old after a while. Thompson points out that when people retire, they should earn money from their investments rather than from working. Well, thanks for that.

Thompson intermittently inserts more stories about his childhood throughout the book, presumably to give a dry topic a human face. But the stories are dreadful. No one cares what vegetable he hated as a kid. His arguments often start off logically; e.g. Social Security won’t be there for you, so you need to invest for your own retirement. But then he tells us that standard retirement plans – 401(k)s, IRAs – are bad.

Huh?

He argues that retirement plans are bad because the people invested in them assume that

• they’ll grow
• when you start drawing from them, you won’t be in a punitive tax bracket.

He adds that mutual fund companies will screw you by assuming you’re too lazy or incompetent to do the math. They’ll claim that a 10% annual return followed by a -10% return is a 0% return, rather than the -1% return it really is.  Thompson maintains that you shouldn’t finance anything, e.g. a truck, that’s going to depreciate. (Agreed. As we say here at Control Your Cash, buy assets and sell liabilities. But good Lord, does it take Thompson a while to get there.)

To build wealth, Thompson recommends you create a “private banking system”, which is a roundabout way of saying (we think) incorporate and pay yourself first.

In the second half of Discovering Hidden Treasures he touts the financial metric of Economic Value Added, which is just after-tax profit less cost of capital. Thompson says EVA is important because when a business or person subtracts capital from profit, it forces him/her/it to put every dollar to work. If your capital isn’t earning you interest, put it somewhere where it will.

Finally, almost 2/3 of the way through, Thompson has all the answers for where to put your money. Someplace better than a retirement plan (see above.) Someplace better than a bank, which charges interest. His perfect vehicle for stashing your money?

Mother-loving whole life insurance.

It’s at this point that we’d have felt cheated had we paid for our review copy of Discovering Hidden Treasures. See the previous post for why whole life insurance is a waste of money.

The most entertaining line of the book:

If you take 1000 people from birth to death, 75% are still alive at age 65. So it would be safe to say that statistically speaking 3 out of 4 people will die after age 65.

Wait, how do you figure?

Notes for the author. This is not a comprehensive list:

• It’s “midst”, not “mist” (p. 11)
• principles/principals? Seriously? This confuses you? (p. 26)
• a plural noun don’t takes a singular verb. (all over)
• if something’s “unprecedented”, you don’t need to tell us it’s “never been seen before” (p. 28)
• for the love of God, when you type “$” you don’t have to write out the word “dollars”. Never. Ever. In English, we even call that handy typographical marvel the “dollar sign”. It has “dollar” in it! (everywhere)
• a thing can’t be “very unique”. It’s either unique or it isn’t.
• Roth IRAs aren’t capitalized. Well, the IRA part is but the Roth isn’t. (p. 35) It’s a guy’s name, not an acronym.
• saying that a particular URL “can be found on the web” and including the “www” doesn’t exactly paint you as tech-savvy.
• things don’t “yo-yo up and down”. The verb “yo-yo” implies the direction the thing takes.
• question marks end questions. Periods end statements. (p. 53)
• using “needs” as a noun is all sorts of douchey. (throughout)
• You can get something free (of charge.) You can get it for nothing. You can’t get it “for free.”
• And above all, passages are slowed down by use of the passive voice. (See what was done there by us?)