Monday, November 27, 2006

Lick Observatory In Sight!

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Enjoying Tea with Elinor on top of Mt. Hamilton

It's good to have friends in high places! Posted by Picasa

Piaw & Sy on Mt. Hamilton

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Piaw and Lisa on Mt. Hamilton

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Sunday, November 26, 2006

Review: Smallville Season Four

I have to say that I really dislike the way story arcs are handled in Smallville. This season's big story arc revolves around three MacGuffins that are meant to be gathered by Clark Kent. Unfortunately, there are only a small handful of episodes that advance the plot --- most of the time, the plot is advanced by little side shows that don't even include Clark Kent. This makes the primary story arc feel more like something thrown in there so there's a little bit of continuity, rather than a coherent storyline that you frequently see in Buffy The Vampire Slayer, for instance.

There's also a major plot hole around those MacGuffins. If there had been prior Kryptonian visits to Earth, why isn't Earth a Krypton colony, instead of having only one survivor of Krypton? This is such a major plot hole that it ruins the credibility of the rest of the season.

Lois Lane makes an appearance in this season, really demonstrating that Smallville does not intend to stick to Superman canon. I really enjoy the portrayal of Lois Lane, however. She does not fit the damsel in distress stereotype, and frequently does kick ass. Her cousin, Smallville's star reporter Chloe Sullivan also finally discover Clark's secret, and Luthor, while being played as a sympathetic hero in previous seasons finally becomes the villain, but not before he gives Clark many chances to be honest and come clean with him.

I do miss what they did in previous seasons, where the music being played in the background is more often than not part of the character's foreground, so whenever Lex gets out of his car, for instance, the music that he's listening to stops. The mode of dressing Clark in red and blue continues, and it's kinda neat to see them do that. There is also a very well done reworking of Myxlplyx, a Superman villain that I thought would have been tough to do on TV. Sarah Carter also does a great comeback as Alicia Baker the teleporting girl in a touching two-parter.

The DVD does include a peek into the writer's room, where you see why Smallville's overall story arcs are so incoherent. The main drivers for the TV series aren't even in the room most of the time. When seeing the corresponding footage in Buffy, you'll see Joss in there all the time bashing out stories together with his writers.

All in all, worth watching, but not worth buying.

Saturday, November 25, 2006

Review: Making Globalization Work

I met Josepth Stiglitz when he visited Google on his book tour. His intelligence, grasp of the issues, and obvious concern about important issues like global warming impressed me, and I looked forward to reading the book.

This is an important book, and may very well be the best book I've read all year. It answers several questions:
  1. Why did the IMF and World Bank prescriptions for the Asian crisis fail?
  2. What precipitated Argentina's default of its debts?
  3. Why does the U.S. run persistent trade deficits, no matter what its budget situation is?
  4. Why do Asian countries insist on continually buying American debt despite the fact that the money they spend doing so is better plowed back into their own countries with better returns than U.S. Treasury bonds?
  5. Why do the most successful developing economies have high savings rate? Conventional wisdom says that those countries are best off borrowing money and building out infrastructure with debt.
Stiglitz has several proposals for all the major issues he addresses, including the inequity between rich and poor, the problems of over-fishing and global warming, and what the world can do about it. The proposals are sound, based on solid economics, and plausibly will solve major problems if only they would be implemented. Given that the USA frequently refuses to go along with proposals that promote equity over its narrow economic interest groups, Stiglitz even has proposals as to what the rest of the world can do, independent of the USA, that can ultimately put pressure on the USA to join on important issues such as global warming.

As an investor, I have substantial assets in US companies that will be hurt by many of his proposals. As a humanist and an environmentalist, nothing would make me happier than to see his proposals be implemented. As a cynical person, I'm willing to bet that his ideas will not be implemented --- our pharmaceutical lobbies as well as our energy companies are too powerful to overcome, and our democratic process not transparent enough. And I don't expect the general electorate to read this book, understand it, or vote on issues other than Gay Marriage or the National Pledge. If it were, the last 2 presidential elections wouldn't have been even close.

Nevertheless, for an understanding of how a Nobel-prize winning Economist can apply his intellect and the tools Economics provides to solve major world problems without inventing new bureaucracies, this book is a breath of fresh air. Highly recommended and worth paying full price for if your library has a long wait for this book.

The globalizers of the past twenty years may have thought that the economic doctrines they pushed for through the international institutions would by now have succeeded so well in enhancing the well-being of everyone that all would be forgiven. Perhaps they hoped that even if there were growing inequality, so long as there was money trickling down the poor could be placated. Even if a few were denied access to lifesaving medicines, if overall enough people saw their health improve they might be satisfied. As we have seen, for too many the promised benefits did not materialize...

Tuesday, November 14, 2006

Edward Scissorhands Musical Review

I watched this musical this past Sunday. The review will be from someone who's never seen the film version of Edwards Scissorhands, so please take that into account when reading it.

First of all, the musical is not really a musical in the sense of something like The Sound of Music or Chicago. Its a dance musical, which I'll say does not really appeal to me much. As I'm really more a fan of the word, be it spoken or written, art through music and dance alone just did not appeal very much to me.

The musical was about 2 hours long, with one intermission halfway through, and takes us through the story that most will find familiar if they've watched the movie. Even though I've never seen the movie, and there were no words, I had no problems following the story and the moods and progressions that the musical takes.

The sets were very well constructed, and the play makes judicious use of special effects and layering of sets to get its intended effects. Its one of the most special effect heavy musical I've seen, and part of that is due to the lack of dialouge I believe.

The music was very well done. Its nothing new if you've seen the movie, but even then, to hear it live and competently performed would make it new to any fans of the original Danny Elfman tracks.

The dancers and cheography was also quite competent. The fluidity and movements of both individuals and groups were quite good to my unpracticed eye, but neither was it particularly joyful to behold I thought. Again, I'm not a fan of dance musicals, so I can't really compare it to anything else.

All in all, I beleived it was quite a competently done dance musical. It doesn't break any new ground and it really is mostly a fan-service to fans of the movie. Anyone who's never seen it won't be lost, but they probably would not appreciate it as much either. Definitely people who don't appreciate dance musicals should stay away.

Overall, a 6.5 in my books. I wouldn't pay full price to see it, but at half price, it wasn't a terrible deal.

Sunday, November 12, 2006

Review: Castle Waiting

This is a comic described as feminist fantasy, and it does live up to the name. There aren't too many men as characters in the book, and all the primary characters are women. There are lots of little fantasy touches, including a courtier who's a stork, a knight who's a horse, and some cute little demons. The art is quite well done, and the stories are frequently episodic and in many ways deeply domestic in nature. There's a quiet tone all throughout the book which is consistent.

It's quite clear, however, that this is merely the first volume of a multi-part work, and I'm following quite enough series as it is, so I cannot say I'm eagerly awaiting the next volume. As a quick read and good entertainment it's worth picking up, but I would not pay full price for it.

Saturday, November 11, 2006

Greg Mankiw loses credibility

Greg Mankiw tries to pretend that it wasn't Bush's tax cuts that causes the swing from budget surplus to budget deficits. Fortunately, it looks like his readers (in the comments on his blog) catch him on this attempt to weasel out of this Republican responsibility. I have to say, I used to have respect for some of the more academic conservative types, but my meetings with both Larry Summers and now this recent series of mendacious posts by Greg have really brought them down in my eyes. In contrast, my encounter with Joe Stiglitz, Brad De Long, and of course my reading of Paul Krugman's well-written, well-analyzed articles give me confidence that the type of economic advisors Democrats consult really are in a different class of human beings and professionals than the type of person the Republicans hire.

Considering that the best software engineers are more than 100 times as productive as the median, it is no surprise that the economy does tend to do significantly better when the Democrats are in power, just based on the quality of the hired help. Not only that, while the Democrats tend to have leadership that actually pays attention to its hired help, the Republicans have had a tendency to ignore its economists as well as to do things like dismantle the Congressional Office of Science and Research, which served an incredibly important role in helping shape science and technology policy. Like David Brin says, this is one of the many good things the Democratic Congress should be able to do without any possibility of veto from the moron in the White House.

Wednesday, November 08, 2006

A satisfying election...

As someone who got naturalized around 1996, after Clinton got elected for a second time, it's been a frustrating 10 years to be a Democratic voter. To see this sweep (I'd never thought Montana would vote Democratic) is satisfying. Some have expressed that the Democrats won without an agenda, but to be honest, the Democrats don't need one. They proved themselves (from 1992 to 2000) to be great policy makers (compare Clinton/Gore against Bush/Cheney), able to hold down deficits while reduce inequality. I look forward to the next generation of people like Gene Sperling to bring forward and propose better ways for society as a whole to help each other and raise all boats, not just those of the wealthy and already fortunate.

There's been a lot of hand-wringing from folks like Greg Mankiw about the fate of free trade. I think Greg forgets that it was Clinton/Gore who signed NAFTA, not Bush/Cheney. Furthermore, the existing trade agreements are already done deals. Congress cannot get out of it. And to sign further trade agreements under the current trade philosophy, as Joe Stiglitz has pointed out, would be a big mistake.

Ultimately, given the choices involved, I'll trade free trade for more stem cell research, a reduction in the deficit, a re-instatement of Paygo, and the chance (however remote) of seeing universal healthcare. All these latter issues are far more important than an additional 0.5% or so GDP growth additional trade will get us anyway, especially if all such trade does is to bring pain to the lowest income workers amongst us.

Tuesday, November 07, 2006

Turning off full site feed

It's come to my attention that some guy's been syndicating my blog feed to feed his own advertising driven site (I'd link to the guy but that would be giving him some undeserved pagerank). Not cool --- he didn't even ask for permission, and he provides no links back to my blog, so folks who want to see the original have no way of finding out where his content is coming from, unless I embed links to my own blog entries from my posts! I hate to do this, but I'm hoping that my friends won't mind coming to my blog in person once in a while when I have long posts.

Monday, November 06, 2006

Review: Smallville Season 3

This isn't a very good season in the sense that in many ways, it feels like a setup for seasons to come. There's too much emphasis placed on Lana and Clark's relationship, which is too much like a turn-around-chase-me story for me. At some point you want to shake the people involve and say, "quit your whining and behave like a real human being." As a matter of practicality, there's only so much back-and-forthing an audience is willing to put up with before quitting a show, and the show's writers are definitely running out of tricks to play.

The highlight is that Michael Rosenbaum's Lex Luthor really comes into his own in this series --- in many ways he is the hero of the story. By turns sympathetic, decisive, capable, and most importantly he seems to be the only truly unselfish and unself-centered character in the entire season. Certainly, to watch him is to wish that the Lex Luthor in Superman Returns was written with as much sensitivity and intelligence. I can only imagine what Kevin Spacey could have done with that character.

In any case, at this point it's quite obvious that the show does not want to adhere to canon, so I'll keep watching to see how it all turns out. Hopefully, the next season's episodes resolves more mysteries.

Oh yes, there is an obligatory cliff-hanger at the end of the series. But does anyone seriously doubt that all involved will return next season?

Diversifying Away from Company Stock

Occasionally, someone will ask me for financial advice. Dan, however, turns out to have a brother, Brian, who's quite a bit of a financial maven, and after several e-mail exchanges, I decided that this exchange is worth posting on my blog for all to share.

The problem Dan has is similar to that of many other employees at companies that have succeeded financially: the stock price of company stock goes up, and pretty soon you have a lot of your net worth sitting in one stock. This isn't a desirable situation, for all sorts of reasons, but how would you transition from that situation into a balanced portfolio? I faced this problem myself a few years ago. In the following dialogue, italics are Brian's comments, and the regular text is mine.

Also, I Bonds do not appeal to me at all. Even if they are inflation-protected and tax-deferred, their rates aren't appealing (find the 'Composite Earnings Rates' table at the bottom). Going with my gut here, I would want a 4.5-5% return on this sort of thing, and it's only been in that range once in the last 8 years. Maybe I am missing something here.

We've seen as high as 6.52% rates during the 6 months after Katrina when inflation was as high as 5%. My take on I bonds is that with the tax deferral and the inflation adjustment, you'll have a hard time beating it with conventional bonds. Using the Vanguard after-tax yield calculator , for instance, you'll find that even the 3.75% California IT Tax Exempt yield after taxes grants you a 5.98% yield!

So for the years when you can take advantage of the tax deferral, the current 4.52% yield is even more impressive. Since you can control essentially when you withdraw the money after 5 years, you can for instance, time it to be on a year where you have low income, perhaps during an unpaid leave. On top of that, if the interest income gets used to cover educational expenses, such as school fees for your kids, or graduate school tuition, the entire interest income is tax free. Note that I bonds are always exempt from state taxes, so if you plan on living in California or some other high state tax state, they're a pretty good deal.

Please clarify one thing for me: I first thought you were advising AGAINST the 3.75% California IT Tax Exempt fund, but then it appears you were championing the fund. Which is it?

My take on it is that it's a good bond fund for people who live in California and are in high income tax brackets (i.e., me and Dan). But it's not as good as I bonds. So it's only for people who need more than $30000 of bonds a year in their asset allocation.

For someone your (and my) age, I strongly recommend a 90+% indexed equity portfolio with an over-weighting of small-cap and an over-weighting of value. (Really, 95% equities is where you should be, I think.) I also think you want to have at least 20% (probably 25-30%) of your portfolio in international markets (with an over-weighting of emerging markets). I am beginning to believe in REITs as a good non-stock-market-correlated diversifier as well. I think 10% of your portfolio in REITs is a good idea.

It depends on where you are. All the studies I've seen show that the optimal stock allocation for maximum withdrawal rates lie somewhere in the 82-85% range for a 60 year payout. Obviously, Dan might not be in a state where the goal is maximal withdrawal rate, but rather aggressive growth (Note that a 60 year payout period requires rather aggressive growth type portfolios). That's a decision for him to make. I'm at the point where each additional percentage of growth is less interesting to me than incremental risk is worth, hence I have an incredibly diversified portfolio (though with the equal weighting to international equities, you'll find that I'm already more aggressive than most would advocate).

I think you should rebalance your holdings every 12-18 months.

Depending on how Dan is planning to diversify out of company stock, he actually has an opportunity to incrementally rebalance his portfolio every time he diversifies away from company stock. In addition, he also has potentially substantial tax loss harvesting in the first few years that he can manage, if he was so inclined, raising his total return further.

The studies I've read show that if you can minimize that tax and transactional costs, rebalancing as frequently as every month can be beneficial. David Swensen at the Yale endowment management team rebalanced as frequently as every day! Now, the Yale endowment's structured as a non-profit, so there are no tax implications and transactional costs are very low for such large sums of money. Hence my belief in a simple portfolio. If it's simple enough, you can rebalance every quarter as you diversify out of company stock stock, and you will do it because it's easy. Anything that's too complex and involving lots of tiny sums, and you're going to not bother.

If I was in Dan's situation, I would be like to be allocated as such:
% Asset Class (Example Vanguard Fund)
17 Domestic Large-Cap Value Stock (VIVAX)
11 Domestic Large-Cap Growth Stock (VIGRX)
10 Domestic Mid-Cap Value Stock (VMVIX)
7 Domestic Mid-Cap Growth Stock (VMGIX)
10 Domestic Small-Cap Value Stock (VISVX)
5 Domestic Small-Cap Growth Stock (VISGX)
16 International Developed Markets Stock (VDMIX)
9 International Emerging Markets Stock (VEIEX)
10 REIT (VGSIX)
5 Bond (VBMFX)

Using the example Vanguard funds, that puts Dan in all passive-management funds with a portfolio-wide average of .26% expense ratio. If you have not seen it yet, Morningstar has a very handy and very simple portfolio analyzer tool. Several minutes after you enter your data and get to the 'X-Ray Overview' page, the page will auto-redirect to a page requesting you join Morningstar, but you can hit the 'Back' button as often as you want.

That's not a bad allocation. I understand the overweighting of value stocks, though I don't like having lots of small funds, since that makes the portfolio tough to manage. I also don't believe you have sufficient amounts of international stocks. I'd go for 30% at a minimum, maybe as high as 40%, but these are minor tweaks. Your general approach is correct.

I'm very cost conscious, so I have a tendency to use big positions in the appropriate aggregate fund in order to hit the $100k admiral shares hurdle and get even lower costs. I'm also a big believer in simplicity, as you can see from my critique of Bernstein's book. I'm also a big fan of having substantial portfolios in health care and energy, both as hedges against these big cost components of your cost of living, as well as the fact that they are good investments in an of themselves.

My take on the situation is that Dan will have plenty of risk as it is in his holdings of company stock. I wouldn't advocate a higher level of risk for someone who will likely still have at least 70% of his assets in one company stock. If you look at the dot com bubble days, you'll see that a portfolio with at least a 20% bond component would save folks from the massive stock market melt down and put them in a good position to invest in the stock market when it was weak. A 5% component isn't enough of a cushion to make a difference.

I have been thinking about his diversification away from company stock in a different way. Basically, I do not consider company stock as part of his allocation. He has Asset Stack A, which is full of company stock and Asset Stack B, which is his various retirement and non-retirement investment accounts. I am trying to push him to (1) find the ideal way to get as much from Asset Stack A into Asset Stack B and (2) get Asset Stack B properly allocated. Perhaps this is a horrid way of looking at his company stock holdings.

It is not horrible, since if it's the majority of his assets, then considering company stock to be part of his allocation might have you sticking a majority of the resulting funds into bonds, which isn't a great situation. But you do want to take some of that into account, because I wouldn't advise someone who had a majority of his assets in one stock to then take 95% equity in the rest of his positions either. It seems excessively risky, because the company stock is at least partially correlated with the rest of the stock market, so if the general economy did something bad then both his company stock and his 95% allocation in the equity market is going to do very badly. Now, most likely that won't happen, but if it did happen then I'm pretty sure Dan would rather be only 80% wiped out than 95% wiped out. That 15% additional cushion is very significant when you're just starting out, and the additional gain from having extra 15% allocated to stocks just isn't that much. In other words that additional bond allocation of 15% is cheap insurance.

By your statement, I gather that you think he should essentially consider company stock to be his Domestic Large-Cap Stock holdings for the foreseeable future. Therefore his best course is to basically diversify around that with his first diversifying investments going into Bonds. That would certainly be a good way to handle any drastic correction in the stock markets (which are likely to have a proportionally larger affect on a speculative stock like company stock.

Yes, or while his divesting himself out of company stock. And in fact, that's what I did when I first diversified out of company stock.

I have one concern about Dan buying I Bonds: the five-year holding time (though I know he could get out any time after 12 months with a reasonable penalty). Otherwise, I think they are wonderful investments, especially for someone in your situation. If Dan diversifies out of company stock into a more stable asset like bonds (or a CD or a savings account), I would want him to be in an asset which he could quickly and easily sell if there was a significant stock market correction; I don't think I Bonds are the right asset for that. I would prefer he be in something like the 3.75% California IT Tax Exempt fund.

This is correct analysis, but I think the difference is in the margins and it's a judgment call one way or the other. My analysis goes the other way: if inflation went up dramatically (say oil prices hit $120 a barrel or more), then the stock market would drop (or at least lose value in real terms but not nominal terms) but the value of the I bonds would go way up, so I bonds are the right thing to hold in that case. The CA Tax Exempt IT bonds, however, would find their value dropping in periods of high inflation, so they're not as good a hedge in that scenario. That's why my ideal portfolio allocation includes both inflation-protected bonds and normal bonds to cover multiple scenarios. Regular bonds do better when inflation is low, but the stock market is also low for other reasons (e.g. deflation, the 2001 terror attacks, etc).

In fact, David Swenson considers inflation protected bonds and regular bonds to be two completely different asset classes, as described in his book, Unconventional Success. Note that TIPS and I bonds are similar, with TIPS having extremely poor tax characteristics, which is why I prefer I bonds. If taxes were not an issue (say, in an IRA or 401k), then TIPS have a higher yield.

I clearly need to give bonds in general more consideration. How would you be using your bonds if the stock market dumped 30% of its value? Would you liquidate half of your bond holdings and dump them into your various stock funds? Would you liquidate ALL of your bond holdings?

I'd do my standard asset allocation thing: rebalance until my asset allocation matches what my intention was. In my case, that would be 14% bonds. So if stocks dropped by 30%, and bonds rose by 10%, I'd sell enough bonds to drop bonds back down to 14% and buy stocks to bring it up to 82%. It's psychologically very difficult to do this, by the way, since at that point you're selling winners to buy losers, but that's what accounts for the rebalancing bonus.

It would take a huge fit of greed for me to liquidate all of my bond holdings. My hope is that I'll never succumb and have the discipline to stick to my asset allocation.

I don't like more than 35% of his portfolio being in international stocks (especially with the weak US Dollar). But you are definitely swaying me towards a larger bond fund allocation for Dan.

You think the dollar's weak? You ain't seen nothing yet. The economists I've talked to (including Brad DeLong from Berkeley) think that the dollar has to drop another 30% before equilibrium is really reached. Hence for the long term, I'm bearish on the dollar. Here's Paul Krugman (a Princeton Economist) on the issue:

Trade Deficit. We finance our deficit by borrowing. This cannot go on indefinitely. Stein's law – re: Herbert Stein – "if something cannot go on forever it will stop." If this happens then any kind of scenario will have to involve a substantial fall in the dollar. And the markets are not taking this into account. Inflation adjusted bond rates seem incorrectly priced, compared to the EU or Japan. Some bonds are being bought by foreign based banks for non-market reasons. But many are not. So the market, if it took the dollar decline into account, would price this in. There will be a Wily Coyote moment. When? I would have said the answer was two years ago, so I've been wrong before. But it will happen at some point.

As for the number of funds, I don't think it is difficult to manage 10 funds, but then again I don't have to manage these... Dan does He could reduce complexity at the risk of missing out on some of the overweightings I allocated, but I feel very strongly about overweighting value and somewhat strongly about overweighting small-cap.

I'm sure that over the long run the overweightings you describe are true, but in the short run while building up a portfolio, I'm not positive the increased cost of having to rebalance all these and ending up with lots of small accounts doesn't swamp any benefit you get from the proportionate overweighting. My impression was that the relative gain is small, but maybe you're seeing better numbers than I am.

While Dan is doing the transitioning allocation thing, it probably is easiest for him to reduce the number of funds he holds. After a cursory examination, I like this allocation for his first round of diversifying out of company stock:
40% I Bonds
30% International Index (VGTSX)
15% Domestic Small-Cap Value (VISVX)
15% REIT (VGSIX)

This certainly diversifies all the money away from domestic large-cap growth stocks. It gives him a relatively liquid non-S&P 500 correlated holding (REIT). It gives him tax-deferred inflation-protected bonds to sell and put in the market if there is a major correction (though he would need to wait 12 months to dump his I Bonds into anything else... but this is good way to keep someone from a knee-jerk reaction to a correction that hasn't finished correcting yet).

Next round, we add some Domestic Small-Cap Growth. Next round, some regular bonds. Next round, some Domestic Mid-Cap Value. Next, some Domestic Large-Cap Value. Eventually, we'll get him to a widely diversified asset allocation (with more bonds and a larger International holding on your sage advice).

I have pushed Dan to talk to a CPA specifically because I want him to protect as much of his assets from tax loss as possible.

Ah. I didn't make myself clear. Tax loss harvesting has nothing to do with tax planning. Let me give you an example. Suppose you bought the Vanguard Total International Index Fund. This composes of something like 50% Vanguard Europe Index fund, 30% Vanguard Pacific Index Fund, and 20% Vanguard Emerging Markets Index fund. Suppose the first year you bought the Total International Fund it went down by say, $2000. What you do is you sell the fund and buy its underlying components. This lets you take advantage of the $2000 tax loss to offset other capital gains (from say, selling more company stock), while preserving your underlying asset allocation. You can rinse and repeat in subsequent years. Of course, sooner or later (hopefully sooner rather than later) you run out of tax losses to harvest, but it's a useful technique in the first few years, when you're diversifying out of company stock.

I actually didn't know this was called 'tax-loss harvesting'.

Indeed. It is the basis of several financial companies, including Parametric and Burton Malkiel's latest company, Active Investment Advisors.

I am familiar with the concept and actually recently talked to Dan about using it if a very specific set of circumstances arose with his company stock. I am assuming whichever tax advisor Dan talks to will bring this strategy to his attention.

It'll be a rare advisor in my experience that's with it enough to mention it. This is the kind of stuff you have to figure out for yourself. (Yep, advisors are pretty worthless) It is a myth that wealthy people can easily find good advisors. It's not easy, and it's far too easy to find people just willing to take your money instead.

I gather that you also do not see much point in paying someone to tell you how to invest your money. Are you in agreement with me that Dan probably shouldn't bother spending money on a CFP/CFA?

I haven't found any worth paying for, though if you had $250k sitting around in Vanguard funds (or were willing to put $100k into various Vanguard funds), they'll draw up a financial plan for free. I had that one a few years ago, and it's a competent plan, but too conservative. It became very obvious to me that I knew significantly more than the advisor I spoke with. Ultimately, the best use of the money is to buy a copy of Burton Malkiel's A Random Walk Down Wall Street, and then use the rest of the money to buy yourself a day of vacation and use that day to explore John Greaney's Retire Early Home Page.

[Brian notes: Much of my thinking has been altered during this (lengthy) conversation. For example, after reading THE REBALANCING BONUS: Theory and Practice, I now think rebalancing quarterly is a more advantageous strategy. Additionally, I have been swayed to believing that a bond holding larger than 5% can definitely be appropriate for people in their twenties who aren't expecting to retire any time soon. And I Bonds very much appeal to me after Piaw's description. I don't really consider myself a 'financial maven' at this point, but I think I am well ahead of the game for most people my age (even compared to the few people I know in the financial industry). I have much more reading to do, and Piaw's recommendations are quickly moving to the top of my reading list.

To anyone reading this post, I want to say this: Retirement seems very far away when you are in your twenties. If you have a high income and have had a windfall from stock, you may think to yourself that you can put off financial planning for even longer. This really is backwards thinking because the more money you can put away now, the less you will need to save in the future (though once you start saving, you will find future saving to be almost automatic). Spend a weekend afternoon familiarizing yourself with basic investment concepts. Then spend another weekend afternoon learning about the importance of low-cost diversified passive asset allocation (aka diversified indexing). Then talk to a CPA about how best to manage the tax ramifications of your wealth. Once you've gotten that far, you are in good shape to start managing your own finances for years to come. Why do you want to manage your own finances? Because the person you can most trust with your money is you.

And a note on balance: While saving is very important while you are young, do not forget to enjoy your wealth to a moderated degree. You have studied hard. You work hard. You don't have to play hard, but you should play SOME. I highly recommend travel, but that's a personal preference.]

Thanks Brian! It behooves me to remind anyone who's read this far that you shouldn't take financial advice from a couple of strangers on the internet. This exchange is provided for informational purposes, and not to recommend any action or any financial products. No one involved was a financial professional.