Most people, including experts and even sometimes this blogger, use what I call the Black Box Theory of Stock Market Returns. It isn’t really much of a theory. The idea is that the internal workings of the stock market are basically mysterious and unknowable by mortals. The best you can do is to observe what has happened historically to people who have put money into the box 
and average their results.
So we find that the S&P 500 return has averaged X% over some number of decades and we conclude that over the long run that is what we will get from the stock market. You may not get X% in any given year, but you should expect to get that as an average over a long period, because that was the average over a long period in the past.
This is not an entirely unscientific approach. It is objective and makes appropriate use of data. But on reflection it should be pretty clear that it is not all that scientific either. It lacks any sort of explanation of how or why the market returned X%. Maybe there was something that was driving the market up in the past that will not apply in the future. It’s possible.
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The 208th Carnival of Personal Finance is up at Money Under 30. The host did an excellent job, except that he mentioned witnessing the world’s largest lobster roll, at 60 feet long, and named this week’s edition in its honor, but did not provide a photo.
My oh-so-clever post from last week on any printed number being believable is there, way down at the bottom. Placement was not an editorial choice, it’s what I get for writing something that is best categorized as “other”.
There are a bunch of posts in the carnival worth the read. A post on the fact that Thomas Jefferson was in in debt his whole life is worth it because, apparently, this is not common knowledge. I blame public schools.
There’s a post making what I would think is a non-controversial point that you can save money by buying your dog cheaper food. It’s worth reading because the one comment it got argued it was wrong. Also, there’s a picture of a puppy.
Tough Money Love had an appropriately cynical and mildly hostile post on the government bailout and takeover of GM. I liked that. But I was disappointed by a post entitled Making love with money is my favorite kind of romance. I was hoping for something more edgy, possibly with tips on using Craigslist.
The other day in my post on Marotta Asset Management’s posts on Free Money Finance I mentioned a maneuver that could make a person some money that involves converting from traditional to Roth IRAs. It’s a fairly obscure strategy. Google and I were only able to find one other explanation of it, in 
an article in the Journal of Retirement Planning from 2007. (See page 57.)
So Marotta may deserve credit for introducing this trick to the blogosphere. Of course, last week I said that I thought that Marotta didn’t explain it very well. It seems only sporting that I try explaining it myself. In case it needs to be made clear, I am neither a CPA nor a lawyer, just a sneaky jerk who likes to do things that make him feel clever.
First, a few preliminaries. Traditional IRAs can be converted into Roth IRAs, but a person has to pay tax on the balance that was in the traditional on the day of conversion as if it was income earned in that year. Currently there is an eligibility limit based on income to be allowed to convert, but that limit goes away in 2010.
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It’s the first Friday of the month, so it’s time to review all the exciting recent developments in the frugalosphere.
May was a month of themes, some old, some new. In the old category there was the ongoing frugal controversy over toilet paper. We were cheered to read that a California county stopped buying four-ply tissue. Much of 
California’s current budgetary troubles are no doubt traceable to this luxury. And the Frugal Duchess shared a related tip: flatten the roll "a bit" so it doesn’t roll so easily and waste paper.
But then One Caveman’s Financial Journey had a long and well researched post making the case that, in the long run, more expensive toilet paper is actually cheaper. Apparently, his research shows that a person uses less of the good stuff, resulting in a net savings of $0.002 (a fifth of a penny) per bathroom visit. We will have to wait for other frugal scientists to reproduce these results before we accept his findings.
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Many years ago (19 to be exact) an otherwise unknown research firm put out a report on the average amount of time spent during an American’s life doing various mundane tasks. It was presented in terms of years, so many years spent watching TV, so many washing dishes, and so on. The media loved it 
and widely reported the numbers along with the obvious commentary that we Americans were wasting our lives with trivia and drudgery.
Except that to anybody who thought to do some simple math in their head, the numbers were hilariously implausible. I wish I could find a copy of the report now, but this was in the pre-internet dark ages. My possibly faulty recollection is that they said we spend an average of 6 years in the bathroom.
If you don’t think about it, and want to write about how we spend too much time alone in a tiny room, 6 years sounds just believable enough to use. But if you do some quick calculations, you realize something is very wrong. Assume the average life expectancy is 72. (About right and it makes the math easy.) Then each year of your life is 20 minutes per day. Two hours a day in the bathroom? Every day? Average?
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and average their results.
Economics, Investing | Frank Curmudgeon | 
June 9, 2009 7:00 am | 
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