My Investment Philosophy

Slow and steady wins the race.

Last week I wrote about how the lottery is for suckers. As it turns out, almost every ‘get rich quick’ scheme is like playing the lottery. Sure, if you buy the ticket, your numbers might come up and you might get rich, but for the most part you’re going to lose some or all of your initial investment.

Investing in stocks is no different. In stocks, the lottery tickets might be small companies or bargain value buys that on their surface have the potential to be more lucrative than the Apples, Exxons and Wal-Marts of the world — but in reality, you’re gambling that your number — your stock picks — are going to be called in the next drawing (or the next trading day, week, quarter, year or decade).

I am going to be writing a lot more about personal finance in this blog as I undo many of my past mistakes and put myself on better footing. It’s not a ‘get-yourself-out-of-debt-and-get-rich’ plan, it’s a measured process of paying down debts, saving in cash and investments, and planning for a better future. Hand-in-hand with those strategies goes my investment philosophy, which in general is best described by the moral to the age-old fable of “The Tortoise and the Hare.”

Keep in mind that I’m a 35-year-old journalist, not a financial advisor, and that the universe of possibilities when it comes to investments is huge. I am also married with no kids. There is no one-size-fits-all solution for my financial situation, or for anyone else’s. This is a matter of personal preference.

If you read my previous post about my poor financial planning and debt, you already know the core holdings of my retirement portfolio – index funds based on the S&P 500. I consider the S&P 500 my portfolio’s benchmark, too, and there’s a good reason: I believe the S&P 500 is the most accurate index of overall U.S. stock market performance. In the past, economists and investors have looked to the Dow Jones Industrial Average, or as we transitioned to the high-tech information economy, the Nasdaq – but these indices are smaller and less comprehensive than the S&P 500.

I am a passive investor. My balances are still too low to start picking stocks, even if I felt like I had enough knowledge and skill to beat the market. While my risk tolerance is extremely high, I’m not at the point where I can take any chances with my money.

I am seeking beta – to match the growth and performance of the market. Until 2015, the S&P 500 was growing at an average rate of around 10.5 percent per year. I would be incredibly happy to match that performance, as my assumptions for retirement are only 7 or 8 percent a year of asset growth depending on which scenario I’m using.

Why, with all my investment knowledge, my access to advanced financial products and my ability to call some of the greatest living financial minds from my desk at work, would I settle for matching a stock index? Because I don’t really believe in active strategies. Because in general, I subscribe to the efficient markets theory.

The efficient markets theory holds that stock markets, where thousands or millions of trades can occur at the blink of an eye, already price in information about their constituent investment products. That’s important because believers in active management must have faith that they or their investment managers have some kind of knowledge about an investment, a class of investments, or a sector of investments that the market as a whole has not anticipated and factored into its pricing of investments.

For example, a good active investor may feel like the market is underestimating the volume of retail sales or the price of oil in the coming year, and therefore they would buy retail sale stocks, energy companies or oil on the commodities market, believing that their fellow traders are paying too low a price for the investments and that they could turn it around for a profit in the future.

Some of the most successful investors, including Warren Buffet, Vanguard founder Jack Bogle and Princeton University economics professor Burton Malkiel, argue that the market is now moving faster than these active managers can, making it impossible for them to time the optimal moments to buy an investment when it is undervalued or at a low and to sell when it is high. The markets, in other words, know more about the price of an investment as a unified entity than any of the experts could possibly know as individuals or firms.

Furthermore, in the rare cases where an active fund manager or investment advisor is beating the markets, their investment fees tend to diminish or destroy their ability to outperform. In investment lingo, outperformance, or beating the market, is often referred to as ‘alpha.’ Alpha happens, but whether it can occur consistently due to an investors intention is still a raging debate among those in academic finance. I personally believe that on a long enough timeline, even the best educated and best informed active manager's chances of beating the market will approach zero. Slow and steady, folks.

My belief is that by investing in broad indexes, even though I might experience down years or flat years (2015 was a flat year – the S&P ended in pretty much the same place it began), I can pick up that 8 to 10 percent per year average gain in the market, and by averaging into the market at a steady rate, I don’t risk buying mass quantities of stocks when the market is at a peak and about to decline 20-40 percent.

Despite my passive, long-term tack, I also prefer exchange traded funds, or ETFs, to mutual funds for a few reasons. One, ETFs are traded in real time on stock exchanges with prices that are allowed to fluctuate throughout the day. If I’m trying to buy a fund off its bottom, its lowest level, the ETF format is superior to mutual funds. Because they’re traded on exchanges during the day, ETFs are more liquid – meaning if I ever wanted to convert my investments to cash, I would have an easier time doing so with most ETFs than I would with most mutual funds. Furthermore, ETF shares can be 'built' by buying the constituent investments and trading them for their equivalent in fund shares - which contributes to their liquidity. Finally, ETFs are very transparent. While most mutual funds are also transparent – meaning that information about their management, fees and underlying components are widely available – they often aren’t transparent in real time. With ETFs, if I was to start making more active moves in the markets, I could easily compare the value of a fund’s underlying components with its share price and trade accordingly. Not so simple with mutual funds.

Keep in mind that I self-describe as an aggressive investor with a high risk tolerance. I consider myself 30 to 35 years out from retirement – I’m targeting 2051 as my retirement year, I’ll be turning 70. I’m willing to experience severe market fluctuations this far out from my retirement date. Furthermore, when I figure in some of my personal information – fair health, married, childless, moving up in my career (even though I work in a not-so-stable industry), living in an area with a strong economy – I (mostly) fit the profile of an aggressive investor. Thus, I’m not really worried about investing in bonds at this point in my life, I want to capture the growth potential of the stock market.

We can split my personal investing into two areas, with two different philosophies and concerns: a portfolio solely for retirement, consisting of my 401(k) accounts and IRAs, and a portfolio for other savings, which does not yet exist (and won’t for some time, as any income it generates would be taxable).

While I count around $12,000 from my wife in a T. Rowe Price large-cap growth mutual fund as part of what I manage, I won’t be discussing it here. I also have around $5,000 in old employer 401(k)s that is allocated to target date funds. That will remain untouched for the time being, and won’t be counted for the purposes of this discussion. What’s left is my current 401(k), a rollover IRA and a Roth IRA.

My Roth IRA account is currently in cash — with less than $100 in it, I haven’t bought an investment with it yet. When the account reaches the minimum price for the Vanguard S&P 500 ETF (VOO), which is around $175 today, I’ll start buying.

My rollover IRA – a traditional IRA – has eight shares, around $1,500, of VOO in it. I will diversify this IRA as a roll over more of my former 401(k)s into it, but for now VOO is my base investment.

Which leaves my workplace 401(k). I have a love-hate relationship with 401(k)s. For one thing, if you  are offered one with an employer match, I don’t think I’m going against the grain telling you to get the free money in your employer match. That’s what I’m doing, my employer will match me up to 3 percent, and will match me half a percent for every percentage point I contribute between 3 and 5 percent. So if I contribute 5 percent, I can get my employer’s maximum match of 4 percent, which as it turns out is what I am currently doing. I love that. I also love that, like a traditional IRA, the money can be deducted right out of my paycheck before taxes, and I won’t pay any taxes on it until I start taking distributions from the account in retirement.

However, like most workplace 401(k)s, my investment options are limited, in this case to some of mutual funds. I would much rather be able to select from an unlimited range of ETFs, but instead I have to chose from 20 or so mutual funds. Luckily, there are some great options in the list.

Out of the gate, I chose to begin contributing to this new account 90 percent stocks, 10 percent bonds. This is still considered a very aggressive portfolio allocation, but when I first set up my contributions I hadn’t considered how aggressive I really am. As a result, I’m now slowly averaging out of contributing to the two bond funds I chose.

Here’s a list of my investments:

91.7% in EQUITY (or stocks)

40.3% in SWPPX – The Schwab S&P 500 Index Fund $560

10.7% in BEGQX – The American Century Equity Growth Fund, Investor Shares $149

10.6% in VIMAX – The Vanguard Mid Cap Index Fund, Admiral Shares $148

10.1 % in GSSIX –The Goldman Sachs Small Cap Value Fund, Institutional Shares $141

10.1% in OIDYX – The Oppenheimer International Diversified Fund $141

9.9% in EKJYX –The Wells Fargo Premier Large Company Growth Fund, Institutional Shares $139

8.3% in FIXED INCOME (or bonds)

5.1% in PHYZX – The Prudential High Yield Z fund $71

3.2% in VSGDX – the Vanguard Short Term Federal Bond Fund, Admiral shares $45

The Schwab S&P 500 fund is a mutual fund similar in composition and goals to the VOO ETF. With an expense ration of 9 basis points, it costs almost twice as much to buy and hold as its Vanugard ETF cousin, but 9 basis points comes out to .09 percent per year. I think we can afford that. The other funds range from 9 basis points for VIMAX to 94 basis points for GSSIX and 101 basis points for OIDYX.

Originally, when the account was opened around four months ago, the portfolio was 40 percent in SWPPX, 10 percent in each of the other equity holdings (for 90 percent equity total) and 5 percent in each of the fixed income holdings (for 10 percent equity total). Since then, equity markets have had a bumpy ride and the value of the fixed income investments has sagged.

Currently, I’ve set my my future contributions to look like this:

94% Equity:

40% SWPPX

11% BEGQX

11% GSSIX

11% VIMAX

11% EKJYX

10% OIDYX

6% Fixed Income:

4% PHYZX

2% VSGDX

By the end of 2016, I will average out of contributing to fixed income altogether, and begin averaging out of my other equity contributions and into SWPPX, the lowest cost investment in this portfolio. Eventually, contributions to this account will be 100 percent SWPPX – at which point I will have to decide how I want to diversify. I believe I will start averaging out of contributing to GSSIX and OIDYX first among the equity funds, as they come with a 1 percent sandbag to whatever alpha they might  happen to generate.

And that’s really how I’ve arrived at my current allocation and contribution levels — I’m slowly reducing contribnutions to PHYZX and VSGDX and raising my contributions to whichever equity mutual fund has had the worst year-over-year performance on that particular day.

So why not just sell my bond funds and my non-S&P equity funds and buy into SWPPX? For one thing, a little diversity is a good thing, in investments and in life.

For another, when you’re a passive, long-term investor, you want to avoid selling as much as possible. Selling and buying stocks repeatedly is costly, you being to rack up commission expenses, you risk selling at a trough or buying at a peak, and in general it doesn’t work. Instead, I’m going to balance my portfolio through future contributions – I’m young enough and my account balances are low enough for that to be an effective tactic. Again, slow and steady wins the race.

As it turns out, Mrs. Chris and I are going to be enjoying a slight bump in household income this year, and our expenses for debt, fuel and food are probably going to decline. I strongly believe that I’m best off saving and investing this additional revenue. I’m waiting until the end of the month – just after my 35^th birthday – to figure out whether I want to put the bulk of this money towards my growing emergency savings, or either or both of my retirement accounts.

What I do know is that I want to invest aggressively, in index funds, with responsible management at a low expense ratio — and unless a young person sitting on a pile of money, or your blood pressure rises at the thought of a market downturn, that’s probably the ideal way for the millennial generation to invest.

So coming up on the financial side of things, I’ll reveal a little more about how I am budgeting and saving for the future, and I’ll also expand upon the benefits and detriments of adhering to the efficient market theory through index investing.

Also, long live David Bowie and Alan Rickman. I hate cancer.

Tamping Down the Lottery Pipe Dream

“I think we should buy a Powerball ticket,”- Mrs. Chris on Wednesday, Jan 6.

As much as I disdain social media, I’m as addicted as most other people in my generation, so I know there are a lot of people buzzing about tomorrow (Saturday, Jan. 9, 2016), when a drawing will be made for a record $800 million Powerball jackpot.

In my younger years, I occasionally bought a Powerball ticket when the jackpots surged upwards and hit gaudy new records, entertaining fantasies of helping family and friends pay off their debts, travelling the world, and buying one of those miniature giraffes from the old DirecTV commercials.

I never won a dime off of those tickets.

As it turns out, Mrs. Chris and I did not buy a lotto ticket for Wednesday’s drawing – and nobody won. That means there’s a tiny, tiny chance that our numbers, usually chosen at random, could have won for us.

How tiny was that chance? One-in-292 million tiny. If every person in the U.S. bought one ticket, there’s a pretty good chance one of us would win the jackpot. So on Saturday, there will probably be millions of Americans huddled around their television sets at 10:59 PM, and one of them will end up a very happy and rich person at 11:01.

I won’t be among them.

My wife might be. And good for her. A two dollar investment to allow her to dream of a 9-digit windfall, even for a day or a few hours, isn’t terrible.

But I don’t have any faith in that investment personally, and I no longer dream of catching lottery lightening in the bottle.

Statistically, you’re more likely to remain in relative wealth and comfort if you avoid the lottery altogether. In fact, there’s economic research from economists at the University of Pittsburgh, Vanderbilt University and the University of Kentucky (my alma mater, go Cats!) that suggests lottery winners are more likely to declare bankruptcy than the general population – twice as likely as it turns out.

According to more recent statistics, a survey published last year by the Camelot Group, 44 percent of lottery winners spend all of their winnings with five years. These survey results may understate the problem, which is shared by entertainers, sports stars, and heirs to family fortunes – according to research by the National Endowment for Financial Education, 70 percent of people who suddenly receive a large fund of money lose it within a few years.

Let’s talk about how. For one thing, if my wife’s numbers are called on Saturday, she doesn’t get $800 million. She can choose to receive $800 million in annuitized payments over 29 years (subject to state and federal taxation), or she can take a substantially lower lump-sum payment of around $500 million.  This happens because the $800 million announced jackpot is not actually what you win – it’s the total nominal dollar payout of the annuity over the 29 year period adjusted to inflation – so the lottery is selling players a false bill of goods and misrepresenting the size of its jackpots to begin with. Not exactly a deal I want to get involved in.

The federal government takes 25 percent of that $500 million off the top, so it become $375 million. Unless you live in Delaware or Florida or another state that doesn’t have an income tax, you end up paying both state and federal income taxes on that money. In my state, federal income tax at the top bracket – so you’re paying the top federal rate of 39.6 percent, plus a 2 percent pseudo-surtax that high income earners are subjected to through the PEP and Pease provisions (these actually phase out exemptions and reduce deductions, but for all intents and purposes they’re an additional tax on wealth). We’re now down to $219 million.

Social Security and Medicare want their share, a little over 7 percent, which brings us down to around $203 million. Then my home state, New Jersey, wants to tax me another 9 percent, which brings us down to $184.7 million (it would be nice if, like California and Pennsylvania residents, New Jersey lottery winners were exempted from the state income tax). We’re not even considering how schools and municipalities are taking their share of the winnings.

So when all is said and done, if Mrs. Chris won on Saturday, she would take home at best 23 percent of the announced jackpot, and around 37 percent of the lump sum payment as figured before taxes. She can, of course, mitigate some of the tax bite by donating part of her winnings to charity or by making a gift to a family member (hear that, honey?).

But it is still true that when an individual wins the lottery, the government is always the biggest winner.

Still, $184 million after taxes is plenty of money — with my journeyman financial knowledge, I could easily make that money last my entire lifetime and probably build on the principle for my descendants. Why, then, do so many lottery winners go broke? Why are they declaring bankruptcy at twice the rate of the general population?

Because poor people play the lottery and rich people do not.  Lottery players tend to already have a lot of debt (Mrs. Chris should note that we have a pretty heavy debt-to-income burden). If $184 million doesn’t take care of your debts, you either suck at managing your finances or you’re a small island republic. But these folks aren’t using their windfall to pay off their debts.

In fact, lottery players tend to have below-average incomes and little-to-no financial literacy. In many cases, that’s why they’re playing the lottery in the first place – buying these $2 chances, twice a week, is their retirement fantasy (we can’t really call it a plan, plans have a better than 1-in-292 million chance of success).

But those who follow the weird syncretic study of behavioral finance, a chimera of economics, personal finance, psychology and sociology, also cite the impact of a sudden windfall like a lottery jackpot on people’s behaviors.

Those of us who have entered adulthood keep a ledger somewhere – in our heads, in our checkbooks, in our online account portals – somewhere – that reassures us that our income exceeds our expenses over a period of time – from days or weeks to years and lifetimes. This is because we’ve worked for our earnings – this money represents time we’ve invested.

When income is from winnings, not earnings, most people toss that careful accounting out the window for something behavioral accountants call ‘mental accounting.’ They develop a taste for luxury. They become impulsive spenders. They become the life of the party (as it turns out, winning the lottery has a negative impact on life expectancy, too).

For at least half of us, this behavior is difficult to avoid. It’s like finding out you’re prone to addiction, things start to happen when the conditions are right and you become a different person.

I can parse this for you. Think about candy, your favorite candy, in my case it’s Reeces mini peanut butter cups. Think about bringing in a little bag of 5-to-10 of them from home every day to your desk at work, and eating them throughout your workday. You’re probably not going to have any problem dusting off 5-to-10 Reeces minis in a day, but you ration them, eating one an hour or every 40 minutes, to maximize your enjoyment. Then, one day, your extremely nice boss (and I do work for great people) drops a bag of 50 Reeces minis on your desk. What happens?

Do you still ration-out your Reeces minis on an hourly basis? Do you start giving Reeces minis to your co-workers around the office? Behaviorally, chances are you end up with the same amount of Reeces at the end of the day that you did on any other day when you just brought 5-to-10 from home. You lost your incentive to budget and plan. This happens to lottery winners all the time.

There are real-life examples to back all this up – Jack Whittaker won a $315 million Powerball jackpot in 2002. He made good decisions at first – he gave to charity and started a family foundation. Then he started having problems – some drunk driving convictions, an incident where $545,000 in cash was stolen from him on the property of a strip club, and the suspicious death of a granddaughter. By 2007, he had burned through his winnings.

Whittaker is not at all an outside case – lists of lottery riches-to-rags stories abound on the internet, and are probably more prevalent than the rags-to-riches narrative lotteries and players are counting on.

Mrs. Chris should also know that the four-year divorce rate for lottery winners is also higher. Also, only around half of lottery winners claim to be happier after their windfall than they were before it.

As it turns out, lottery players, who on average spend around $700 a year on tickets, are gambling just as much for a chance at misery and ruin as they are for the chance to achieve their dreams.

That doesn’t mean you shouldn’t entertain a get-rich-quick fantasy and buy a ticket for Saturday’s drawing – just understand that, if your numbers are drawn, you might be in for more than $184 million worth of troubles.

I’m not playing. I prefer for my future to depend more on good, rational decision making, careful planning and skill than a stroke of nearly impossible good luck.

Where I’m at and where I want to be – A financial confession

I’m a financial editor and reporter, but nobody knows what a mess my finances have been. It’s time to come clean: I'm pretty much broke - but not for long.

My financial situation has suffered from 10 years of contingencies and neglect. That’s a brief explanation of what you’re about to read.

My wife and I graduated from college in 2008 with around $36,000 in student debt. Jobs were hard to come by – it was a terrible time to enter the professional workforce, especially for someone with a political science degree – useful but worthless – and a graphic/web design degree – valuable but relatively useless in central Kentucky.

Today, we’re still at negative net-worth. We still carry around the same amount of student debt, after a long period of forbearance, and we’ve tacked on $7,500 of credit card debt on top of that, in addition to a car loan with around $10,000 outstanding on it.

We have around $4,000 in cash to work with. Another $2,000 in savings accounts. Another $20,000 in retirement accounts.

$12,000 of that total is in the Templeton Growth Fund in my wife’s 401(k), generously started for her by her parents several years ago. We have not touched it, even as we sagged financially, but the fund has failed to perform.

Another $5,000 of our retirement is in my former employers’ 401(k)s waiting to be rolled-over or converted to a Roth account should our income really start to grow. This money is all placed into target-date funds set for a retirement some time between 2045 and 2050 (I was born in 1981 – I now want to retire in 2051). These funds have performed well over time and are currently balanced at around 90 percent equities and 10 percent bonds. I’m more aggressive than that in general, but I see no reason at this point to incur the fees with rolling over and transferring the accounts – I’m likely to keep them and not add any principle investment to them.

A little over $1,000 is in my current employer’s 401(k) plan, and I’m adding 9 percent of my personal income to that twice a month – 5 percent from myself, four percent in an employer match. Right now that money is 92 percent in equities, eight percent in bonds, with future contributions averaging in more equities than bonds at a 94 to 6 percent allocation. The core of this 401(k) is in the SchwabS&P Index (SWPPX).

I have around $1,700 in another RIA formed from a rollover – a former employer had defaulted me into a money market account, when I realized I took the money to Vanguard and immediately bought VOO (which is Vanguard’s S&P 500 Index ETF) right after the Aug. 24, 2015 stock slide - which was a good time to get into the market.

I also started a Roth IRA, which currently has less than $100 in it, but I’m contributing to it at a rate of $5 a week.

I’m giving you rough estimates. I know the exact numbers because I keep track of them using Vanguard’s great tools, Mint.com, and my own obsessive checking and re-checking. I’m essentially a passive investor who looks in on his accounts every day. I just like knowing the numbers.

The big numbers I track daily are not the value of my investments, or even my income and spending (I’ve gotten this part of my family’s financial life under control, I think), but my net-worth – which sits around -$18,000 right now – and my cash flow versus consumer debt (money in bank accounts minus total outstanding credit card debt) – which sits around -$1,000 right now.

This year, I would like to improve both of those numbers. I would like to get my net-worth up to at least -$9,000, and I would like to get my cash flow minus consumer debt to around $3,000 (a net gain of $4,000) by the end of the year. This still isn’t a great place to be for a 35-year-old middle class guy, but goals should be reasonable and measurable.

How do I get there?

The first thing I see is that my biggest debts are student loans. However, these are also my lowest interest debts – the monthly payments on that $36,000 only come to around $330, which is a bite out of my income, but feasible – the problem is that the $330 doesn’t really put much of a debt in the principle amount of the loans because of the extended period of forbearance my wife and I experienced. So I’m not really improving my situation by tackling student debt at this point.

The car loan is also fairly low interest, and the payments are only around $250 a month. Again, a substantial amount of our income, but not enough to kill us. It would be nice to pay the car down so I can get more generous insurance rates (and not be required to hold full coverage) but it isn’t yet a priority.

The credit cards have interest rates that almost double the rates of our auto loan and are even more expensive when compared to the student loans. As far as debt is concerned, these have to go first.

This debt is held in two accounts – one with about $5,000 that is being assessed 12% interest annually, and one with $2,500 that is being assessed 14% interest annually. I’m currently paying around $150 a month (net after the finance charge is covered) to pay down the larger account, and around $120 a month net to pay down the smaller. $270 a month times 12 becomes $3,240, that will bring me more than 80 percent towards my cash-flow goal and 30 percent towards my net-worth goal.

Clearly, the cash-flow goal is the easier to tackle, and at the rate I’m paying my bills, I’m going to have some excess cash on top of my credit card payments. While some people might argue convincingly that this excess cash should go to additional payments to reduce my debt, I’m not going to do that at first. I’m going to save – not in a retirement account or by buying investments, but in a savings account – for an emergency or rainy-day fund.

Most experts say that a rainy day/emergency fund should come to 3-6 months worth of spending. My long-term goal is 3-6 months of our net earnings, which comes out to about $31,000. Keep in mind that we have around $2,000 in our savings right now, so I have $29,000 to go until I hit that goal.

Right now, I’m saving around $260 per month in cash, or $3,120 per year, comfortably. That means, under ideal conditions, I will improve my net cash flow by $6,360 this year, far exceeding my goal. I’m on track, no changes needed there. Furthermore, that $3,120 gets me another 30 percent towards my net-worth goal. I only need to cover $2,640 to improve my net-worth to $9,000.

Luckily, I’m socking money away in retirement accounts, too, so let’s see if those cover the gap. $5 per week comes to $260 a year in my Roth IRA – I just need $2,380 more. As it turns out, I’m putting around $330 a month into my employer 401(k) when the match is included. That’s another $4,000. I’m going to exceed my net-worth goal for the year barring any major emergencies.

I’m only 35 –my retirement is still 30-to-35 years away. I am planning for that retirement and I have an idea of how much I should be saving (more than I am now) – but with our current levels of debt, our small nest eggs, and with 30 years of market uncertainty to weather, I can’t use retirement assumptions to make a year-long financial plan.

I have to start short-term and tackle the financial issues in front of me now – stabilizing my cash flow and eliminating my debt while building a buffer of savings – then I can ramp up my investments. This seems like a way that millennials and middle-income people of my generation who may have fallen behind or who may have lost hope for their financial futures can effectively plan and work their way out.

I’m not a financial advisor or a planner, I have no certifications or formal education in finance, and I am not qualified to give you advice. I am not suggesting you go out and buy a ton of VOO or SWPPX just because that’s where I’ve planted the first seeds of my retirement.

Note that I didn’t cover my actual monthly household income and expenses – I’m sure you can come up with an estimate from the information I’ve revealed here. The next financial plan post I write will cover how I itemize my expenses and income, whether I will end up with a greater surplus than I’ve envisioned here at the end of 2016, and whether I will increase my debt payments, my emergency savings, or my contributions to my Roth and 401(k) accounts – or spend a little bit on my wife and I - as a response. Afterwards, I’ll bring it all back down to earth with a very sobering look at my savings rate, why 9 percent isn’t nearly enough for a 35 year old, and how I'm going to get back on track.

Private Universities: The Great Unequalizers

First of all, full disclosure, I have worked for two universities in my life. The first was a major public institution that has slowly been building itself into a research powerhouse. This was also my alma mater.

The second was a smaller private school trying to grow beyond its history as a liberal arts college into a premier regional campus.

Opulence. They have it.

The difference between these schools was night and day. One had over 35,000 students on campus, the other around 10,000. One catered to the middle class residents of a relatively poor southern/Midwestern state, the other wanted to draw from the children of the gentry in one of the country’s most affluent areas.

These schools are petri dishes for social inequality - true social inequality, not that caused by differences in ability or achievement, but inequality caused by ascribed status.

One had a sprawling semi-urban campus punctuated by a few high-rise dormitories and office towers. The other had squat but beautifully designed academic buildings segregated from the residential portion of its suburban campus.

Not the most welcoming dorms on the planet.

One charged its students around $5,500 per semester for their education, the other upwards of $15,000.

One had a campus designed and maintained to be pedestrian-friendly, despite the sprawl. The other spent thousands of dollars each year to meticulously groom its expansive lawns and gardens.

At the public school, many of the classrooms were state-of-the-art for their time, wired to broadband internet with multimedia equipment. At the private school, the classrooms had more of a retro feel.

The public school had a few noteworthy professors – a famous philosopher, a great historian, an excellent creative writing teacher, a world class medical faculty. The private school had one noteworthy professor, a cutting edge instructor of undergraduate psychology.

Given the information above, after four years of schooling, which school’s students do you think had the most advantage?

Believe it or not, the public school is a better value than the private school hands down, but its facilities and programs don’t necessarily lead to better outcomes for its students.

The private school had the benefit of one of the best career services departments I have ever seen. Kids graduating from programs with deficient curriculums and taught on obsolete equipment were virtually guaranteed jobs at major companies because of the success of the school’s internship and job placement programs. The school leveraged ties to executives at local and regional companies to ensure that its graduates had a leg up over their competition.

Otherwise, the private school was an utter rip-off. For triple their investment, kids left with less education and fewer experiences than they would at the major public school. Yet the relatively privileged students matriculating there had the advantage of job placements upon graduation, while students at the public university were left to fend for themselves and compete in a challenging job market.

It’s difficult to say whether their better job prospects compensates for the increased cost of their education – or the potentially higher levels of debt that they graduate with.

Despite the career services, I found the private school a difficult sell — I was tasked with writing marketing material for the university, and I didn’t believe in the product. Besides the fact that it was near the beach and provided easy access to New York City, there was very little to promote. The school was bland and uninteresting compared to my public school.

I remembered my college experiences – I heard speakers like former Israeli Prime Minister Ehud Olmert, Palestinian legislator Hanan Ashrawi, poets like Nikki Giovanni and Patricia Smith, concerts as diverse as the Kronos Quartet, Lil Wayne, Medeski, Martin and Wood and Girl Talk while I was at my relatively modest public school. I travelled abroad and met important people, and was still able to network and find a job after graduation.

I wouldn’t trade that for all the hobnobbing that a small, affluent private school could provide – but when I place myself in the shoes of parents and students making their college choice today, I can see how easy it is to be seduced by the ease of ascent provided by a small-to-mid-sized private university - you can work less, learn less, experience less, and get paid more in the end if you can afford the higher tuition. 

I'd like to say that if I were a parent, there’s no way I would want to send my kid to the kind of small private school I once worked at – there their educational opportunities are severely limited by the size of the school and the myopia of administrative and academic departments.

However, if I have a financial need to make my child an independent earner as quickly as possible, I might have to encourage my child to go to the private campus.

If I were a student, it would be difficult to resist the private school’s promise of a unique and exclusive educational experience. - but would I really want to go to a mostly white, upper-class suburban school when I could immerse myself in the diversity of thought and background exemplified by a major public university?

We talk about education as a leveling tool between class distinctions, but we have two different educational systems at the university level – a public system that provides better education at a stronger value, and a private system that uses favoritism to put preferred students into better jobs right after graduation.

If public universities are ever to be an equalizer between the social classes, more attention has to be paid to transitioning students from their educational to their professional lives.

In the mean time, more scrutiny has to be placed on the U.S.’s small-to-mid-sized private universities – are they really providing students with a quality education, or are they simply glorified networking hubs to permit the next cadre of spoiled elites to worm their ways into positions of power?