Is There a Perfect Income for Happiness?

The Christmas season is quickly approaching, and, in our office, the Michael Buble holiday Pandora channel has been playing nonstop (we are using the wireless speaker purchased on Black Friday) to help us get ready for the holidays. In addition to this, the ABC family channel has 25 days of Christmas specials to watch with your family, and, even though they may not be the best movies, they tend to make us feel good this time of year.

Shopping is in full swing so be sure to check your gifts on pricegrabber.com and make purchases through Ebates.com to earn up to 6% back from some retailers.  Brian’s favorite purchase this year has been the Kindle fire for his daughter.  The new redesigned Kindle fire has a special app that provides restrictions on content for children and also restricts usage.  You can restrict apps for games and movies but keep reading times unlimited.

This time of year also brings thoughts of thankfulness and charity.  If you are searching for some additional tax relief, you may want to consider making some extra charitable contributions before the end of 2012.  Clean out those closets and cabinets because there is speculation that charitable contributions as well as other deductions may not be the same next year.  Also remember the Fidelity charitable gift fund is a good idea for a charitable giving plan.  Fidelitycharitable.org  requires $5,000 to open an account, and you get to choose how your money is allocated, conservative or aggressive.  Appreciated mutual funds are also accepted.

Another staple of this time of year is the “Christmas Cocktail Party”. Here’s a great topic for you to use this year – What is the perfect income to be “happy”?  A research report from last year showed that $75,000 was that magic number.  A new study this year from Skandiva International shows something a little different.  13 countries were surveyed, not including the United States.  The global average happiness income was $161,000.  The top three countries were Dubai at $276,000, Singapore at $228,000 and Hong Kong in third with $198,000.  The Germans seem to feel happy with less income.  Germany’s magic number was $86,000, and the French needed $114,000 to feel happy.   Remember, however, that wealth and income are two very different things.  The global average to feel wealthy was $1,800,000.  Americans seem to think that $1,000,000 makes them feel wealthy.  Singapore ranked highest on this survey where they need $2,900,000 to feel wealthy.

There was a great piece in the New York Times written by Carl Richards, a financial planner in Utah.  The article talks about which investments are best and how to respond to “that guy” at the holiday party who seems to have all the answers about investments.   Dave Ramsey recently answered a question on his radio show about investing.   Dave’s quote was “I recommend mutual funds because they always beat the S&P.”  In this industry, we never say always or make guarantees.    Promises like 12% can make our jaws drop.  Here is a list of the facts he lists to help us with our investments.

• Don’t  try to beat the market.  Financial goals are more like saving for college or building up retirement.  Decide what a reasonable rate of return is and look for funds with a good performance.
• Rear view investing leads to accidents.  Don’t chase the “Hot Dot”.  The best performing funds of 2012 may not be the best investments for 2013.  The things that have made those funds so successful have probably come and gone. The goal is to buy low and sell high.  If you are investing while the fund is at the peak of its performance, you may be setting yourself up to sell at a lower rate.
• Reversion to the mean – If you look at mutual funds that have been around for 25 years, 62% out-perform the S&P.  Be careful, however, to keep an eye out for survivorship bias.
• If it sounds too good to be true, it often is.  Promises of beating 12% a year are a bit out there.  Stick with well-diversified asset classes and a portfolio that matches your goals and risk tolerance.  Plan for the worst, be conservative, and stay prepared.

A simple strategy – set your goals and save as much as you can.  Don’t chase after past performances or let your emotions run you out of the market at the wrong time.   Understand how important it is to have reasonable assumptions in your plan.

Lastly,  there will always be someone who tells you how smart they are or seems to have it better than you, but don’t let this make you take your eyes off the prize.  Put together a plan, stick with it, and you’ll be surprised how happy you will be.

Merry Christmas from The Money-Guy!!

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