Should We be Putting Our Children to Work During the Summers?


Really the whole school schedule has become somewhat antiquated.  In the past school ended in the summer because that was when the children were needed to help raise the crops and care for the animals and the land.  A child might also miss school in the fall if there were crops to harvest or lumber to haul.  Gathering ice in the winter might also mean a few days away from school.  Many children looked forward to going to school since it meant a little time away from their chores.

Today children come home in the summer still even though few work on the farm or even help with the maintenance of their homes and yards.  To make it even worse, there are a lot of families where two parents work outside of the home, meaning teenagers are left alone and younger kids are sent to a sitter or away to camps.  They generally play video games and watch TV and YouTube videos.  Some kids are still glad to go to school again – this time out of boredom.

Still, it would be difficult to change the system.  Children are used to long summers off.  School systems are not ready to cool a school through the summer and most busses have no air conditioners.  Teachers are also used to working only 9 months of the years.  Despite complaining about the low pay only working a 3/4ths time job provides, the truth is many choose teaching in part so that they can have some time off to be with their children and do other things besides work during the summer and winter breaks.  I doubt many would take another job to cover the summer and the breaks if one were available, not that I would blame them.

Still, it seems like children could be doing something more productive to help them get ready for life during the summers.  Obviously older teens can get a summer job, and many have – at least before the rising minimum wages and regulations made fewer jobs available.  It seems like younger children could be doing something more as well.  Maybe not for money, although running and working a pet sitting business of a yard care business could help them learn the value of work, some aspects of running a business, and some skills with money management.

There are other productive, creative things they could be doing as well, though.  Perhaps they could be writing a short story or even a novel.  Maybe they could be tinkering with some old electronics or writing computer games rather than just playing them.  Perhaps they could be doing some science experiments – using the internet to track earthquakes or asteroids, or doing some biological experiments with plants.  Perhaps they could be doing some elaborate art project.  Or maybe they could be going to the office with mom or dad and helping out with things.

Certainly childhood is a unique time and there should be a lot of time for fun and adventure before going into the working life of adulthood.  Still, surely there are a lot more substantial things to do besides watching music videos and playing video games.  Any thoughts?

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Investing to Make an Inheritance Last


When my uncle died a few years ago, we received an unexpected notice from a life insurance company.  Apparently he had taken out a life insurance policy with each of his heirs as beneficiaries – six in all.  He certainly didn’t need to do this.  Normally the purpose of life insurance is to take care of a dependent in the event of an untimely death, and this was not the case since I was not a dependent.  I was grateful for the gesture, however.

The amount wasn’t huge.  It was around $10,000, which was substantial but it wasn’t something from which one could live off the interest.  I could have simply added it to an investment account and invested it, or maybe used it to pay off part of our home loan.  If I had done that, however, it would have gotten lost and probably mostly forgotten in a few years.  I wanted to do something that would remind me of my uncle and his generosity for years to come.

I decided to establish the “Uncle David fund.”  Here’s what I did:

1) I invested the money in an index fund (the Vanguard Small Cap ETF fund, to be exact).

2) Each year I sell about 10% of the fund shares.

3) We plan a special getaway – either a weekend vacation or part of a longer vacation, and designate it as the “Uncle David vacation.”  Nothing fancy – just a weekend getaway somewhere via car.  We try to make the scope of the vacation small so that we can travel well, rather than trying to string out a long vacation on a shoe-string budget.

Because I can expect a return of somewhere around 10-15% on average, the money should last for about 12-15 years at this spending rate.  This is enough time for our kids to grow up.  This means that we will have a nice family vacation financed through my uncle’s generosity for several years to come.  This is a way to remember him and get the gift of time together.

The same could be done with a larger inheritance.  It could also be designed to last indefinitely instead of only for a dozen years or so.  The  secret is to invest the funds in equities, which return somewhere between 10 and 15% historically over long periods of time, and then not withdraw more than about 4-5% each year.  That way the returns from the investments will pay for withdrawals and also keep up with inflation.

For example, if you received a million dollar inheritance, you could invest it and receive, on average, about $100,000-150,000 each year in return.  If you withdrew $40,000-$50,000 each year, the funds should last indefinitely.  Some years the balance would decline, other years it would grow substantially, but in general return it would stay about the same after inflation.

You could also base withdrawals on the return for the year.  Maybe take out 30% of whatever return is generated.  If the fund made $150,000, you would take out $50,000.  If it made nothing or lost money for the year, you would take out nothing.  To lessen the variations, you could keep a cash account with the withdrawals and withdraw a fixed amount from there.  For example, you could keep $150,000-$200,000 in cash and withdraw $50,000 each year to spend, adding money on years when the market had a positive return to help maintain the cash balance.  Since it is rare for the market to decline several years in a row, it is unlikely the cash balance would reach zero.  If it did, you could wait a couple of years for the markets to recover and replenish it.

Done correctly, an inheritance can last a lifetime and provide a special memory of the person who has passed.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Beware the Jerk – How The Stock Market Trades on the Acceleration of the Economy


Ben Bernake, Chairman of the Federal Reserve,  was saying that by easing up on bond buying they would be easing off the accelerator rather than hitting the brakes on the economy.  Despite these assurances, the market has tanked, wiping out returns from June and May in two days.  The trouble is that the stock market trades on the acceleration of the economy rather than the velocity.  Changing interest rates may only effect earnings growth slightly, but this can have a big effect on the stock market which prices stocks based on expected future earnings.

In physics the rate of change in distance per unit time is velocity.  If you drive 50 miles in one hour, you have a velocity of fifty miles per hour.  The rate at which velocity changes is acceleration.  For example, something falling will go from zero feet per second to 32 feet per second over the period of a second, so the acceleration due to gravity is 32 feet per second per second, or 32 ft/s^2.  The rate at which the acceleration is changing is called “the jerk.”

A stock will be priced based on the expected future return of a stock.  This means that if earnings are expected to increase, the price will increase.  It is the rate of change, rather than the actual earnings, that causes the price to change.  The change in price occurs as soon as the earnings increase is expected and then generally will stay at the same price range with minor fluctuations due to trading and other factors so long as the earnings expectation remains the same.  Earnings are the rate at which money is produced, which is like the rate at which a distance is covered.  It is therefore like the velocity of money.

The rate of earnings growth is then like the change in velocity, or the acceleration.  A stock will be priced based on the rate of earnings growth.  If growth rate changes, the price will change as well.  A price change will occur rapidly when the jerk is non-zero – when the rate of growth of earnings changes. 

This is why we are seeing the stock market swoon despite Bernake’s assurances that they are just easing off the accelerator.  People know that interest rates will increase when that happens.  That will make money harder to get and make companies pay more to borrow money.  Both will cause earnings growth rates – acceleration – to slow.  The jerk is therefore negative, so the markets have reacted negatively.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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