Blog Archives - Page 7 of 9

Taxes come first: This year I decided that I was going to pay my quarterly business taxes on time. And not wait until April 15th and get hit with a huge tax bill again.

Well, my next quarterly payment is due soon. It’s on my calendar. Its next month. So, I know that I have to pay for taxes, glasses, my bills, savings, and investments. As well as Double car payments to have my car paid off in the next few months.

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Pay Off Credit Card Debt

May 24, 2017 by Frugal Prof

Financial Freedom

Pay Off Credit Card Debt:

I’m sure we can agree that paying off credit card debt is a worthy goal. After creating an emergency fund, paying down debt smallest to largest is the next step to become debt free. In this post, I will review the steps I took to get out of credit card debt as well as discuss my decision to shift away from credit cards in favor of debit cards. Let’s begin.

Getting Results by paying off credit card debt

The 7 steps you need to take to become debt free are pretty straight forward:

1. Get organized: Its nearly impossible to stay in debt if you’re organized. For most people this means opening the credit card statements that are unopened in a box or drawer somewhere. You can no longer hide in denial about the credit card debt or student debt that has accumulated. By getting organized, you will be able to Take Charge of your personal finances. You wont need a personal loan or any debt relief.

Right now, I’m reviewing my year end credit card statements from and I see so many charges that I’ve cut out. And I feel great about all the money I am not wasting.

But part of me is calculating how many thousands of dollars of money that just spilled out of my life simply because I was not paying attention. Read more about the dumb stuff I bought last year.

2. Create a Budget:

It doesn’t have to be fancy. On one side is all the income you have coming in. And on the other side is ALL the expenses you have going out. Every dime! Which means you must open the credit card statements and really understand where your money has been going. One of the advantages of this exercise is that it allows you to find your areas of wasteful spending.

3. Eliminate wasteful spending.

For me, the most obvious wasteful spending was a $100 storage locker. It made me so angry that I eventually began this journey and started writing this personal finance blog. (If you’re ready to start your own blog, begin here.)

Don’t dwell on the money that you’ve wasted in the past. Focus on your debt free future. I was paying for auto renew memberships that I didn’t even remember. Never again.

I began to explore our current consumer culture and why we buy what we buy. This helped me understand why I was spending so much money shopping. More on Consumer Culture and why we buy what we buy.

Make sure you’re using discount codes and getting cash back. I use Ebates and they give me cash back for nearly all of my purchases. Ebates gets a commission from stores you shop at and they share the commission with you. Average cash back is about 7%, which is great. Right now, they are offering a Free $10 Gift Card when you join and spend $25. More about Ebates Here.

4. Negotiate Discounts:

For those services and memberships that you like but would like to pay less for, you need to contact the merchants and ask for a discount. Yes, you can do it. And yes they will give you discounts on your memberships: Cell phone carrier, cable company, Satellite radio etc… I have written a whole post about How to negotiate Discounts.

5. Create an Emergency Fund:

It’s easy to fall into debt when unplanned emergencies happen. Unfortunately, life is full of unplanned emergencies. That is why you need to set aside an emergency fund of at least $1,000 to start. I have written an article on why and emergency fund is so important, An Emergency fund is an umbrella for your life.

6. Increase your Income: Everyone is looking for a way to increase their income. When I got really motivated to pay down my debt, I wrote financial articles for a financial blog and created this blog. You may want to find a side hustle or side income. I’ve written a number of posts about the best ways to increase income. 45 Ways to Boost your Income is one example.

7. Stay Motivated: I found reading the book, The Total Money Makeover by Dave Ramsey to be incredibly helpful. Yes, it lays out the framework he used to be become debt free. But, the big benefit of the book is it gets you fired up to get out of debt. It is very motivational. And that is really helpful on the debt free journey. More on Dave Ramsey’s book here.

Credit Cards vs. Debit Cards

I’ve recently changed my mind on credit cards.

I always pay off my credit card balances each month. And I never pay credit card fees or interest. So, when I got my MasterCard bill this weekend, I knew something was very wrong.

They charged me a $25 fee. Ugh

Which means I have to waste 10 minutes talking to them to reverse a fee that could never have even happened if I listened to Dave Ramsey and cut my credit cards up. Maybe he was right. Anyway.

Well, It was my fault.

I sent the wrong amount. I was off by $3.43. (Just Another sign I need glasses!) I paid on time, but I sent them the wrong amount. I was off by $3.43 And they pounced to add late fees and interest charges.

Read my related post on Banks that still offer free checking with interest here.

This is their business. This is what we agree to when we use credit cards.

Of course, I called the credit card company and had it reversed.

And it happens every now and again, I’ll send them money and because of a holiday or something, they receive it a day later than the “due date” and they do the same thing: late fees and penalties. And that’s my fault, of course.

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But, I am struck by this feeling that they are ready to profit from anyone who:

falls behind on their payments,
gets sick,
loses a job,
has a crisis etc
… the credit card companies are not messing around.

This is another great reminder of why you really need to have an emergency fund, read my post because they’re waiting and so are other companies that will take advantage of your situation: credit card companies, payday loans, auto leasing companies, etc … emergencies happen and it is essential to be able to handle them without taking a loan from these companies.

And I’m not saying credit card companies are not a perfectly legal business. I’m saying it’s a perfectly legal business where they make more money from fees and interest when you are most vulnerable. When you lose a job or have a crisis or someone gets sick.

What am I trying to say? Life happens. Be prepared.

I’ve lost a job,
had a family crisis,
and gotten sick in the last 5 years.

And I wish I had an emergency fund in place.

My view on credit cards is essentially that over the next couple years I want to have a couple of debit cards and only two credit cards. Simple. Easy. And focus on living debt free, invest, and retire early. If they offer a big cash reward to open a credit card like $500, then I may take advantage of a credit card offer now and again. Other than that, I will mostly be using debit cards.

Why not close all my credit cards?

Well, I get benefits from one of my credit cards when I travel like access to airport lounges etc… that I think is really worth it. It makes traveling easier. And I get value. But I’m not saying no, either. It’s possible. At some point, I may decide to use debit cards exclusively. We’ll see.

I’m canceling the majority of my other credit cards. Just not worth it. The more of them I have open, the higher the possibility of something going wrong. What about you?

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5 Tips to Avoid a Ripoff

May 17, 2017 by Frugal Prof

I think that you’ll agree with me that even financially smart people can make bad financial decisions. What I am about to share is a bit embarrassing, but in this blog post I will give you the 5 signs that you’re about to get ripped off.

Here are the 5 signs of trouble that will prevent you from a ripoff.

rip off

5 Signs You’re about to get ripped off:

1. Procrastinate until something becomes a mini crisis.

I didn’t want to get glasses. Because eyeglasses are for old people and needing glasses would mean I am getting older.

So, I procrastinated doing the sensible thing. I have some inexpensive cheap glasses, but have known for a few months I needed real prescription eyeglasses. I waited until it was a mini crisis.

So, instead of researching glasses online or asking around, I scheduled a last minute appointment with a local optometrist and an eye exam. I wanted to see a reputable doctor to check out my eyes. And I was planning to buy glasses via Costco later on.

Relevant Articles:

How I paid off $17K in Debt

2. Don’t research before you head out. It was a mini crisis, so I made an appointment for the same day. The appointment went well and I wanted to support the Doctor by purchasing glasses from her boutique. I knew nothing about the pricing. I was a sitting duck because I hadn’t researched the online costs.

Value Investing

3. Listen to a sales person. I’ve never worn glasses, so I was astonished at how much they charged for the frames. And I kept asking the guy,

Are eyeglasses really this expensive? Don’t you have anything less expensive?

When you go to the upscale boutique, you’re gonna pay more. I was in a hurry and my goal was to check this off my list. “Got glasses.”

4. Go to an upscale boutique. Disaster. I was lazy and in a hurry. So, I got sold 2 pairs of eyeglasses that could pay a month’s rent in most of the country. They were much more expensive had I bought them online. More stupid tax. And lazy tax.

I always get cash back because I use Ebates and they give me cash back for nearly all of my purchases. Ebates gets a commission from stores you shop at and they share the commission with you. Average cash back is about 7%, which is great. Right now, they are offering a Free $10 Gift Card when you join and spend $25. More about Ebates Here.

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How to Create Fast Cash with Ebay

Do I Regret the $600 COncert Tickets?

5. Stop thinking. I’m not sure where my brain went during this fiasco. It was at the end of a long day and I really wanted to cross “get glasses” off my list. After heading home and feeling like I had purchased two versions of the Brooklyn Bridge of glasses, I started regretting this disaster Big Time.

Trying to Minimize the damage:

I went online and did some research, which I should have done before making the purchase. I quickly called the boutique and told them I was willing to pay a little more than Costco, but not their ridiculous markup. They said they would get back to me.

What happened? I spoke to the manager and I basically said I appreciated the optometrist appointment, but couldn’t justify paying so much more than Costco.

She managed to find room in their pricing and reduced the bill by about 60%. This was acceptable to me because I liked the frames I purchased and I didn’t want to go to Costco and spend 2 more hours shopping for new glasses.

Tips to Negotiating here.

I reduced the damage, but I still got ripped off because I ignored these 5 signs.

Conclusion: I was really mad about this. I texted my cousin to check how much he paid for his glasses at Costco. I should have done this before being in the situation to make a purchase. I was dumb and in a hurry.

I made this happen.

I procrastinated.
Then, I was in such a hurry that I did no research.
I listened to a sales person.
I went to an upscale boutique when I didn’t need to.
And I simply stopped thinking.

Luckily, my brain came back and I fixed this disaster. But, I created the disaster.

Learn from my mistake.

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Frugal Living Tips: Oprah’s magazine is not one of my favorite things

May 1, 2017 by Frugal Prof

Frugal living tips: O magazine is not one of my favorite things.

Financial Freedom

I don’t tell people how to live or spend their money. I have chosen to scale back, do a budget analysis, and find frugal living tips in order to retire early.

In the process of making theses changes, I have become much more aware of our consumer culture. More on consumer culture.

That is why I was so disappointed when I picked up Oprah’s magazine. And let me say, I am a fan of her positive attitude. I like her show, Super Soul Sundays as well as Oprah’s Masterclass. But, her magazine is not going to make my list of favorite things.

Related Articles:

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How I paid off $17K this year

O magazine: I’ve enjoyed reading the magazine in the past and have gotten interesting book ideas and read some interesting articles. However, since I’ve started on this debt reduction journey, I’ve become much more aware of consumerism in the culture. And honestly, Oprah’s Magazine was a bit disappointing on that front.

Consumer culture:

What struck me is how much the magazine glorified spending. But I’m talking about the content of the magazine. The content of the magazine was all about spending as a way to self-improvement. And that’s not a message I subscribe to. I believe your best life is life after debt.

Products as content: One page in the magazine reviewed makeup and had 63 products on it. Yes, I counted. Again, this is not an ad I’m describing. This is a page in a magazine that people pay for. You’re paying Oprah to promote her favorite things to you. And the articles written by guest authors weren’t actually articles. They were “my favorite things” type of descriptions of their favorite products, including this $45 Vanilla Cake.

I just stopped reading the magazine. I’m not a big cake person. But, $45 seems like a ridiculous amount to spend on a vanilla cake. I’m not talking about a wedding cake or birthday cake for your kids. I don’t know who the target market for this magazine is, but the last thing Americans need is $45 vanilla cake. Seriously.

Spending as the answer to all of our problems:

Oprah is a mainstream personality and I was more than disappointed by her tone deafness. Americans have $2T worth of debt. (see above) Many people struggle with student debt and credit card debt. And many (like the good people who read this blog) are working to pay down debt and lead happier lives by being more thoughtful in their spending.

Debt free is my favorite thing:

This notion that once I can afford Oprah’s favorite things, my life be better. My life is better. I paid off $17K in debt this year and paid off my car. There’s nothing better than that. Debt free is my favorite thing right now.

What do you think? Please share your comments.

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Good reasons to hate April 15th tax day

April 12, 2017 by Frugal Prof

Financial Freedom

4 Good Reasons to hate April 15th Tax Day

Today is April 11th. And I’m frustrated that my taxes are still not done. And of course, April 15th is tax day.

I still have not been able to file my state taxes or my federal taxes. The accountant who handles my tax preparation is still finishing them. Luckily, I will pay my taxes online.

Good Reasons to Hate April 15th

1. Tax day is stressful and frustrating. For many people you have little control over when they will be done and that is so frustrating.

My personal accountant has to wait for my business accountant and the business tax return before he can finish my taxes. The later my business accountant, the later my personal taxes.

2. It’s hard to get the best from your accountant.

What is also frustrating about tax time is that you never get the best from your accountant. The accountant is so busy just completing the tax returns that he or she has little time for advice, strategy, or suggestions other than the minimal, “you should put money in an IRA.” “You should open a SEP IRA or convert a ROTH IRA.”

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Getting Results: How I Paid Off $17K

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I have post-it’s all over my return with questions on tax strategy, tax deductions, and ways to pay less taxes. And this is the worst possible time for my accountant to review any of this. Yes, every year I think I should call him a couple months after tax time and pick his brain, but I get busy and it rarely happens.

3. Writing big checks:

Confession time: I haven’t been paying quarterly business taxes. Instead, I pay the quarterly payments on April 15th. Its not a smart strategy. (In my defense I have been much better about flossing!). But seriously, tax time is much worse when you end up writing bigger checks. And next year I will finally do this. I always make retirement contributions and the HSA contributions. But, I have hated writing those quarterly checks. That stops now. Next year, I will only have to write a few small checks. That’s the plan.

4. The other frustrating reality of tax time is that you’re absolutely, positively not making as much money as you think you are. This is why budgeting is so helpful! April 15th is the big wake up call when everyone realizes after filing their taxes, that the government is taking 28% or more of Everything you make. You’re not making $50,000. You’re only making $36,000 after the government takes its share. It’s really depressing. Which is why you Need to get every legitimate tax deduction you possibly can. Roth IRA, 401K contributions, HSA, etc…

Tax time is frustrating. But it’s part of life.

What’s good about tax time:

The truth is that maxing out a Roth retirement fund over a lifetime will make you wealthy. The math is unequivocal on this. So, if you’re smart enough to be doing that, you’re way ahead of the game to be financially independent. And that’s really good news.

It’s Not About the Money. It’s About Taking Charge and Becoming Debt Free

March 17, 2017 by Frugal Prof

Its about taking charge of my money

It’s Not About the Money. It’s about taking charge and becoming Debt Free.

Here are the steps I used to Become Debt Free:

1. Get organized: Its nearly impossible to stay in debt if you’re organized. For most people this means opening the credit card statements that are unopened in a box or drawer somewhere.

You can no longer hide in denial about the credit card debt or student debt that has accumulated. By getting organized, you will be able to Take Charge of your personal finances. You wont need a personal loan or any debt relief.

Right now, I’m reviewing my year end credit card statements from last year and I see so many charges that I have been able to cut out. And I feel great about all the money I am saving. Read more about the dumb stuff I bought last year.

2. Create a Budget:

It doesn’t have to be fancy. On one side is all the income you have coming in. And on the other side is ALL the expenses you have going out. Every dime!

Which means you must open the credit card statements and really understand where your money has been going. One of the advantages of this exercise is that it allows you to find your areas of wasteful spending.

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It’s not about the Money. It’s about Taking Charge.

3. Pay Down Debt:

The debt snowball method is a great debt reduction strategy where you pay off debts in order of smallest to largest, gaining momentum as each balance is paid off. When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest balance.

It looks something like this:
Step 1: List your debts from smallest to largest.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.

4. Eliminate wasteful spending

The most obvious wasteful spending for me was a storage locker I was paying nearly $100 a month for. It made me so angry that I eventually began this journey and started writing this personal finance blog.

Use the old maxim, A Penny Saved is a Penny Earned.” and realize when you go through your bills that every wasteful thing that you have spent money on in the past that you don’t really enjoy, is earned money.

Don’t dwell on the money that you have wasted in the past. Focus on your debt free future. I was paying for auto renew memberships that I didn’t even remember. Never again.

I began to explore our current consumer culture and why we buy what we buy. This helped me understand why I was spending so much money shopping. More on Consumer Culture here.

5. Negotiate Discounts:

6. Create an Emergency Fund:

7. Increase your Income:

For most people it’s time to increase your income. When I got really motivated to pay down my debt, I wrote financial articles for a financial blog and created this blog. Want to start a blog? Read 7 Rules for a Profitable Blog here.

Side Hustles:

You may want to find a side hustle or side income. I’ve written a number of posts about the best ways to increase income.

45 Ways to Boost your Income is one example.

11 Best Sources of Side Income for 2018

8. Stay Motivated: I found reading the book, The Total Money Makeover by Dave Ramsey to be incredibly helpful. Yes, it lays out the framework he used to be become debt free.

But, the big benefit of the book is it gets you fired up to get out of debt. It is very motivational. And that is really helpful on the debt free journey. More about the Total Money Makeover here.

9. Keep Making Progress:

I was amazed at how much money gets through the cracks. In reviewing my credit card bills, I realized I was paying for all of these items that gave me no value.

multiple anti-virus recurring charges,
membership to a sporting goods VIP club I didn’t remember,
delivery charges every month
an expensive storage unit
bank fees

These are all credit card charges that gave me no value, but I was paying for. And I was paying because I was too busy to pay attention.

But, this stops today. I’m taking control of my money.

When I canceled the VIP club the woman said, “Oh we’re sorry we charged you for our VIP club when you haven’t made a purchase in 3 years.” Yeah Right.

Here’s the truth:

“Were sorry to see you go because we make so much money off people too busy to pay attention to their credit card bills.”

How it all began. What made me say enough.

44 Ways to Create Extra Income

Getting results on your debt free journey

Conclusion:

Today I realize it’s not about the money. It’s about the control. It’s about knowing that every dollar I make is mine. No waste. No exceptions. Nothing lost.

“A part of all I earn is mine to keep.” – The Richest Man in Babylon

Every dollar belongs to me and if I spend it, it’s on something that really adds value to my life. And that principle is important whether you make $50,000 a year or $500,000 a year.

So, I’ll keep going.

I’m taking control of my money.

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Consumerism: Do we even know Why We Want What We Want?

March 7, 2017 by Frugal Prof

Financial Freedom

I’m sure you can agree that you can’t begin a debt free journey without starting to re-think your relationship with spending, credit cards, and consumerism. It’s a worthwhile exercise.

This is an example from my own life. It’s a good example of consumerism and how it’s possible that we’re piling up debt on credit cards to buy luxury goods we want and don’t even know why.

I have nothing against branding or advertising. In fact, I have purchased plenty of designer clothes,expensive watches, and attended pricey concerts.

She was a very pretty girl who was used to getting whatever she wanted. That much was always clear to me. She worked as an assistant to a Wall Street executive and was used to having men with huge egos and bank accounts woo her.

She always wanted to have dinner at one of the three most expensive and or hottest restaurants in New York. Nobu and a few others I can’t even remember. Honestly, at the time, I was ok with all of that. She was actually very smart and insightful, but her financial expectations became frustrating even then.

Consumerism Definition: We spend money we don’t have, to buy things we don’t need, to impress people we don’t even like.

Why do I bring this up? We were dating during The holidays a few years back and she mentioned she wanted lingerie from La Perla. Think Victoria’s Secret but with a 700% markup. I had to research it myself.

I became really interested in this company and brand because I have almost never seen a markup like that for any other product. Their bras were like $100-$200.

As an investor, I was very intrigued.

Why was La Perla so good?
Is it the quality?
The fabric?
Why is it so much more expensive than every other brand?,”

I asked her. She was annoyed and defensive and I think she may have even intimated I was being cheap (Me Frugal?). I was very confused.

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And I quickly realized that she didn’t know what made it the best. She didn’t know why it was better than other luxury brands. All she knew was that her friends would be impressed. She knew the name and the cost. And that was all that mattered. This is the world we live in: consumerism, advertising, and branding.

She didn’t know why she wanted it. She just did.

This reminds me of a podcast of The minimalists I just heard where they talked about how Rolex became such a powerful brand.

Apparently, in the 1950’s and 1960’s, men used to go on vacation and dive using Rolex watches. These were wealthy, rugged, adventurous men who preferred a quality dive watch. And other men started to buy the watches and it became the huge brand it is today.

But, it is primarily a quality dive watch.

And most men pay a premium for a watch that can safely go to 2,000 meters. But many of them never use it in the water except, in the shower or a pool.

Rolex makes you feel cool, rugged, adventurous, and wealthy. But first, they need your $2,500.00

The smarter you are the more you realize how powerful advertising, branding, and social influences are in our decisions to spend money. It’s powerful.

Sometimes we don’t even know why we want what we want.

I’d love to hear your thoughts and consider joining 1,848 financially astute people who are on my email list.

How to Negotiate Discounts on the way to Debtfree

March 6, 2017 by Frugal Prof

The goal is to pay down debt, invest, and retire. Simple, but not easy.

One of the best ways to reduce your spending is to negotiate a lower price on the things you use. Here are some tips on negotiating.

*Affiliate Disclosure: Some links in this post may contain affiliate links to business partners of mine. I may be compensated for this arrangement, but the reader pays nothing. I strive to do business with quality, reputable companies.

The best way to get a discount is to firmly ask for a discount.

People have so many ill conceived ideas about negotiating The media presents this ridiculous image of an alpha male business executive brow beating someone into getting whatever he wants. This is pure fiction and makes too many intimidated to simply ask for what they want.

Ask for what you want. Firmly and confidently.

Ask for what you want.

Did you watch the TV Show, Mad Men? Mad Men was a very good show about Madison Avenue in the 1960’s. Here’s why I bring it up: one of the senior executives is fired and a prime office becomes available. The office has a dozen alpha male junior executives who all want the office.

But who ends up getting the office?

The most junior person -Peggy Olson- That’s right, the only female copywriter with the least experience gets the office.

Why? She was the only person with the courage to ask for it.

If you can get a 10% discount on many of the items you’re using, then you are that much closer to getting out of debt and investing for your future.

Discounts and Cash Back? Yes!

Discounts on Online Shopping:

Make sure you’re getting cash back from online shopping: I use Ebates and they give me cash back for nearly all of my purchases. Ebates gets a commission from stores you shop at and they share the commission with you. Average cash back is about 7%, which is great.

Right now, they are offering a Free $10 Gift Card when you join and spend $25. More about Ebates Here.

An example from my own life: As you know, I’m cutting back on frivolous spending. So, I’m reviewing my credit card bills for all the monthly subscriptions I receive (there are a lot!).

Anyway, I really like XM Sirius radio in my car, but I would like it a lot more, if it was less expensive.

So, I called them. I used a simple, honest approach.

I told the woman that I really liked the service, but I’m not sure I can keep getting it because it’s too expensive and I’m cutting back.

What happened? She offered to cut the fee in half (from $200/ year to $100). I had to pay for the year upfront, which I agreed to do.

We both got what we wanted: I got a better deal and her company kept a customer.

Win. Win.

Save money on insurance:

One incredibly important way to cut your monthly bills is to compare insurance rates. Companies are always changing their pricing to gain market share in this area, so it’s always worth it to check to see what competitors insurance rates are. E-surance is a subsidiary of Allstate and offers very competitive insurance rates.

A few minutes can save you thousands of dollars a year just by being smart.

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Introverts are good negotiators.

The goal of every negotiation is for both sides to get most of what they want. That’s why alpha males are not the best negotiators and why research tells us that introverts and shy people are actually good at negotiating.

Why? Because in order to be a good negotiator, you need to consider things from the viewpoint of the other side.

When I ask for a 10% discount on a TV, I give the salesperson the ability to get what they want: the ability to tell their boss they made another sale. Salespeople have credit card bills to pay too and they have pressure to make a sale. Makes no difference what the product is.

If you don’t get what you want, walk away.

I’ve been meaning to open a new bank account lately because my bank no longer has any convenient atms near me and I’m NOT paying $6 per withdrawal! So, I called the closest bank and spoke to them about opening an account.

In order to waive the bank fees

they wanted me to keep $7,000 in the account,
or a direct deposit every month,
or 10 debit card transactions.

Sorry, but no.

See my post on Banks that offer Free Checking here.

I walked away.

And last month, the same bank had a promotion for new accounts: they would waive the bank fees for just $1,500 in the new bank account AND they would credit me $250 to open the account. Bingo. Now, I’m interested.

Conclusion:

Negotiating takes a bit of courage, which is a muscle we all need to flex. And it allows you to have more control over your life. Which is a feeling we all want.

Ask for what you want. You’ll be surprised how often you can get it.

Investing: The risk to the current stock market no one talks about

March 2, 2017 by Frugal Prof

I’m sure you agree that the current stock market has been on quite a winning streak now. The stock market has gained nearly 25% under President Trump.

The Dow Jones Average just crossed the 26K milestone. And while that may seem like good news, it is smart to evaluate the risks to the current stock market.

Here are some contrarian views on the stock market and major indexes.

In my view, the risk to the stock market is not a crash, but a more nuanced scenario for stock investors.

For most stock investors, the risks to the stock market are rarely discussed. Here is my view of the risk to investors from the current stock market in the coming years.

Current stock market: So here we are ~ Dow 26K.

Let’s review how we got here:
The financial experts predicted a stock market crash if Brexit passed.
It did and investors shrugged it off.
Then the stock market strategists warned us that if Donald Trump was elected, the stock market would crash.
The market has since rallied 12-15% to new highs in every index. Even cyber currencies like bitcoin, cryptocurrencies, and etherium are at new highs. And here we are at very rich valuations compared to historical stock prices.

Most mutual fund managers were underinvested heading into the election.

Since Trump’s improbable win, professional investors have been playing catch up– trying to get invested in a stock market that has not fallen by more than 1% on any day for a month- something that hasn’t happened in 54 years. This applies to the S and P 500 as well as the Dow Jones Average, the major stock market indexes. Stock market Volatility has been crushed.

Retail is Bullish: Individual Investors

Individual Investors are pouring money into this market. Discount firms TD Ameritrade (AMTD) and E-Trade (ETFC) are seeing a huge appetite for stocks by retail investors.

Inflows to mutual funds and ETF’s hit $32B through last Wednesday, the largest inflows since 2002.

ETF’s focused on Bitcoin shares have received $258M in a matter of days. All retail brokerages are seeing new account openings fueled by millennials and those who fear missing out.

For seasoned investors, this is reminiscent of boom days gone by. We don’t know how these new investors will react when volatility returns to the market. But, retail excitement is almost always a sign that the easy money has been made. And in my opinion, passive investing may exacerbate a downturn.

Davos Is Bullish:

“There are 2,000 people [here in Davos], and I don’t think I’ve met one person who’s been negative,” -Billionaire Jeff Greene (NASDAQ:CNBC)

Stock Valuations are very stretched.

Depending on the figure, we are at nearly 26X earnings on the S&P 500. Levels last seen in 1929, 1999, and 2008.

This means the current stock market via the S&P 500 index is expensive. However, due to the intervention by the Federal Reserve in the bond market, the stock market is viewed as the only alternative for most investors. This is a very unnatural situation. As a value stock investor, I can tell you there are hardly any undervalued stocks on the New York Stock Exchange. Very few stocks are undervalued. Investors may ask, “Is the stock market going to crash?”

The risk is not a stock market crash. The real risk is that 7-10 years from now, we are still at or below 2400 on the S&P 500 or 21,000 on the Dow Jones Average.

Why? The Federal Reserve, the Central Bank which essentially controls interest rates, has used emergency level interest rates going on 7 years. This was used to stimulate the economy due to the financial crisis. The federal reserve has a $4B balance sheet.

Interest rates have been at historic lows. This has boosted stocks and real estate artificially.

Pulling future gains to the present. If we have taken future returns, then future returns should be lower going forward.

The fed has been artificially supporting the market. We don’t know what will happen when they unwind their balance sheet and rates return to normal levels.

Artificial support.

My stock market analogy:

When I ran this morning, I cheated a little bit. After I ran, I was walking on the treadmill, but was holding on to the side rails. It’s cheating. My arms were supporting my body. That’s what the fed actions and the stock buybacks have created. It’s artificial support.