The Quality Products Paradox

Posted on February 1st, 2008 in Money Madness, Taxes | Leave A Comment

If you pay more, you get more.

That’s the standard formula, the common wisdom. Buy the basic product for one price, the better-performing deluxe product with extra features for a higher price, and the super-deluxe wow-performance product with every possible bell and whistle for top dollar. More money equals more value, right?  I haven’t found it so.

I bought a watch complete with electronic compass, ten alarms, and altimeter. After a few months, the altimeter still worked but the fixed time was correct only twice a day, and I needed to haul the operating manual around with me to figure out how to work the alarms.

I upgraded from a boom box to a full stereo system and discovered that the antenna on the full system was inferior-full-system users are expected to be CD-listeners, not radio fans–and I couldn’t hear my favorite FM station.

The interior-lighting salesperson sold us on a push-button, dimmable scene-programming system for our kitchen to replace the standard on/off switches. Well, yes, we could create many more moods with the scene lighting, but we couldn’t stop the constant, maddening flickering. Until we replaced the fancy, cinematography-ready system with a more conventional one, our solution was to use the kitchen only while the sun was up.

At the clothing store, when I said I assumed the six-hundred-dollar suit would last longer than the three-hundred-dollar suit, the salesman introduced me to the facts of fashion. No, he said. Actually, because the six-hundred-dollar suit is made of finer material, it will wear out sooner. And since it’s the latest style, it’ll become obsolete earlier.

Yes, lunch at The Four Seasons tastes better than at any diner, my $400 blender does a phenomenal job making smoothies, and our $300 ceiling fan is a lot quieter than the $49 fan it replaced. But many times, adding new! and improved! features to a basically successful product seems only to compromise the product’s integrity and undermine its original purpose.

It’s certainly true for investment products.

A typical S&P Index fund-the investing world’s “basic product”-usually costs about 0.3% per year or less; that’s an annual expense of $30 for every $10,000 invested. The fund has no bells and whistles; it’s just a lamp with a light bulb. It won’t claim to protect you in a down market or shift all your money to the technology sector if that’s where the “smart money” is going. You know exactly what you’re getting: an average return of 11% per year by staying invested in a cross-section of the largest 500 U.S. companies.

But, wait, what if you increase your expenses to 1.5% per year, or $150 for every $10,000 invested, and try to do what academic studies show can’t be done -that is, beat the market? The extra bucks will buy you the bells and whistles of lots of trading, racing around trying to time the market, rotating assets from one sector to another, or ditching the stock with which you’ve become disenchanted in favor of the new “hot pick.”

In so doing, of course, you actually increase the taxes you owe because of all the turnover. And so what if 80% of these active funds under-perform? You’ve got the dimmable scene-programming lighting design that is sexier than the basic product (i.e., the S&P index fund), but is it worth it? Put simply, no.

Think about it. At least five-times the extra money for less performance means less money for retirement. Excuse me, but I’ll take the lower cost, no-frills investment and use some of the savings and extra performance for lighting I can see by-and for the occasional lunch at the Four Seasons…

Another Spencer Sherman

Posted on January 30th, 2008 in Experiences | Leave A Comment

I recently had a meeting with an unrelated man named Spencer Sherman. He’s 16 years older than me, but we were both born and raised in the same New York City borough, and both moved to California later in life. We share similar values and interests, not to mention a name-very uncommon.

Yes, I was curious about another human being with the same name, but the bigger reason for our meeting was to offer him money for his website and its domain: www.SpencerSherman.com.  I brought up my interest and joked that my business partner was afraid I’d pay him $1 million for the site, and Spencer Sherman stopped, thought and said, “I might consider a million dollars, but just for a moment. Money doesn’t mean much to me and I’m enjoying my website.”

How unusual to find someone who doesn’t equate self-worth with net worth, who isn’t willing to sell his joy for money and who isn’t obedient to the call of money as a well-trained dog to its master.

I recall so many instances when I sold enjoyable, precious private time just to make an extra buck. I believed then that, as long as the price was right, you were supposed to sell your joy for money. I let my money madness override the true value of happiness.

I’ve gotten much better at keeping my money monster from running the show, but it’s still a practice.  With practice, each of us can dissolve the money madness and see the value of life beyond money.  The other Spencer Sherman’s peaceful connection to his own happiness over riches inspired a deeper inquiry into my own money madness, and how I can continue to transcend it. Indeed, sometimes we can see in others exactly what we want to cultivate in ourselves.

Money and Peace

Posted on January 28th, 2008 in Community, Uncategorized | Leave A Comment

Many of us operate on the principle that money is somehow antithetical to peace. We talk about having jobs that are well-paying or ethical, companies that are “corporate” and therefore bad. We seek guidance from spiritual leaders who took vows of poverty and religious verses condemning the lust for money. We focus on finding tranquility by releasing our attachment to the material world, in which money plays a starring role.

But what if the truth—money vs. peace, profit vs. ethics—just isn’t that black and white?

Consider MoveOn.org. With 3.3 million members, MoveOn.org has used Internet-based, grassroots community organizing to raise many millions of dollars. Those funds have paid for things like Viacom billboards reading “Inspections Work. War Won’t.” in major cities across the country, thousands of phone calls to Congress in advance of votes on torture and the war in Iraq, and DC rallies with tens of thousands of attendees exhorting the government to take action against genocide in Darfur.

From Patagonia to the Peace Corps to The Desmond Tutu Peace Foundation, there are thousands of organizations creating and supporting peace using not just volunteers and vision, but money. Cold, hard cash. Lean, mean green. (By the way—just look at the words we use to talk about money: cold, hard, and mean!)

The fact of the matter is that money is powerful, but it’s neither good nor bad—it’s neutral. As neutral as a spoon, a wheelbarrow, a paperclip. It’s simply a tool, and like all tools, it can be used for good or ill. A hammer can crash down on your finger or build a house. Fire can burn down your garden or cook your meals. Money can generate suffering, or it can generate peace and progress; and rejecting money because it can cause suffering is like refusing a hammer while building your house because you might accidentally hit your finger.

Rather than struggle to reject money because it’s bad, embrace money as a neutral tool, only as constructive or destructive as our intentions. The nature and scope of its power directly depend on how we use it.

In our progressive communities, many of us have a negative knee-jerk reaction to money. That reaction keeps us from seeing that money creates opportunities to improve the world. When we don’t see the benevolent, constructive side of money, we reject it, and those opportunities are lost.

Get clear on the neutrality of money, and you’ll create possibilities. Possibilities lead to opportunities. Opportunities lead to change. And in the hands of the progressive community, change leads to peace.