Jean Chatzky's 10 Commandments of Financial Happiness

I like Ms. Chatzky’s financial books and commentary because a) she’s learned through personal experience and effort, b) she speaks sensibly, c) she renders thoughts related to a comprehensive and balanced approach to financial living, and d) I believe in what she says.  In her book The Ten Commandments of Financial Happiness Jean analyzes the results of a unique survey in which she questioned 1,500 Americans about their financial attitudes and behaviors.  The list of her commandments:

1.      Get organized

2.      Pay bills as they come in rather than letting them accumulate

3.      Keep tabs on your cash

4.      Save at least 5 percent of your income

5.      Protect your family and your income

6.      Minimize credit-card debt

7.      Do unto others and budget volunteerism and charitable contributions

8.      Spend sensibly

9.      Start working toward your goals

10.   Communicate

The key to success isn’t identifying these 10, it’s being focused and disciplined enough to live them.  And I believe that if you want to do well with all of these, start with #10 first.  Get your spouse, your partner, your financial advisor on board first and then commandments 1-9 get a lot easier to follow successfully.

Confidence that DOWN means that UP is coming

For anyone who has read the book Liar’s Poker by Michael Lewis you will recognize this passage quoting a poetic muse called Memoirs of a Trader written by a man who made a living in the equities department of Solomon Brothers in the 1980s.  In it, the trader describes the hopes and experiences that ride on the rise and fall of the stock market:

The market, he had learned, was like the sea, to be respected and feared.  You sail on its smooth surface on a placid mid-summer day;  you were borne along by a favoring breeze; took a pleasant swim in its waters, and basked in the rays of the sun.  Or you lolled in quiet currents and dozed.  A cold gust of wind brought you to, sharply – clouds gathered, the sun had gone – there were flashes of lightning and peals of thunder; the ocean was whipped into seething waves; your fragile craft was tossed about by heavy seas that broke over its sides.  Half the crew was swept overboard…you were washed upon the shore…naked and exhausted you sank upon the beach, thankful for life itself…

This doesn’t sound at first like an optimistic enough quote to put in a Less Worry | More Happy blog, but I’d argue that it does prove the reason to maintain a positive outlook.  First of all, this wasn’t written in 2008 or 2011, but in the early 1980s.  It could also have been written in the early 1990s, or the early-mid 1970s, or 1987, or the early 2000s.  The point is, we’ve seen many moments where we feel like the sky is falling and that all of our savings held in the stock market have vanished forever.  But we’re still here and in order to have momentous crashes we must also by definition have to have moments of high points from which to drop.  The bears need the bulls and vice versa.

This up and down nature of the market is inherent and nearly a law.  We may not like the big downturns but we accept them and the risks associated in order to feel like our savings will grow over a long period of time at a rate better than other alternatives.  If we failed to have that hope in the long term success of the market then we’d be doing something else with our money. 

A diversified and customized portfolio that incorporates our objectives and our risk tolerance, combined with our understanding that markets are not guaranteed except for the guarantee that returns and prices are in constant flux is still, for most people, a place to be.  We may feel that the reasons for recent ups and downs are different this time.  We may feel that the time spent in a “down” is longer than normal this time.  And we may feel that the prospect for a long-lasting “up” is too far into the future to see.  But we believe that we’ve chosen wisely and that hourly movements of the market that have happened inside this last two-week time frame doesn’t speak for our faith in the long-term viability of where we have placed our savings.  

Market Volatility & Your Investments

When your car starts making a weird noise don’t you turn your radio down and intently listen for the noise?  Don’t you become fixated on hearing the new rattle or sputter and ask, “what was that”?  It seems like when there’s worry about your car all you can think about is what will happen if your engine blows up and you’re left stranded on the side of the road.

But even if we’re listening for and worrying about that noise, most of us don’t immediately drive straight to the car dealer and sell our car.  No, we keep an ear on things and try to determine what’s causing the noise, analyze the reasons for the noise, and interpret the noise to decide whether it’s just a pebble in the tires or a sign of truly serious mechanical failure.

Stock market volatility and daily changes to our portfolio account values should be treated in much the same way.  There are experts, media pundits, co-workers, neighbors, and financial advisors all willing to lend their thoughts as to why the markets are moving the way they are and to render opinions about what the economic noise is all about.  Some will relate the recent volatility to an overreaction to the political handing of what is still a sound standing of the US economy and financial system.  Others will related the recent volatility to a prediction of future problems and another economic slowdown.

But much like taking time to determine whether your car needs to be sold or just have its tires inflated, it is important to take some time to really interpret what is happening in the stock market before making a rash decision.  We do not believe this can be done correctly based on only a few days of activity, especially when there does not appear to be any consensus as to its “cause”.

We believe that most of the activity in the market is due to speculation and a discomfort with uncertainty and not a reaction to any strong indications or fundamental results.  The recent string of economic news has centered on political wrangling, a lack of desire to make important decisions, and a total “miss” on comprehending the consequences of a short-term focus than it has on capacity, capability, and reality.  We think that making decisions based on the former group is dangerous if done too rashly. 

So our advice is to take some time to make conscious, careful, and intentional decisions.  We still believe in devising an investment strategy that takes into account an appropriate time horizon and asset allocation even in the face of reactive ups and downs in the market.  In other words, unless you’ve changed we don’t think your investments should change.