10 Things I Think I Think About Money

1.       I think most of us believe we want it in order to provide for our loved ones.

2.       I think we often spend it in ways that aren’t truly in line with “providing”.

3.       I think we don’t appreciate how rare our money “problems” are in contrast to how most of the world’s population lives.

4.       I think we fail to understand the true cost to our health, attention, and relationships of what it takes to earn it.

5.       I think most people do not believe that they control their level of happiness about it.

6.       I think we don’t want to admit our ignorance about how the financial world really works.

7.       I think we are too quick to believe people who make money selling their ideas about it.

8.       I think most of us expect the wrong things when we invest it.

9.       I think we build lives around it rather than the other way around.

10.   I think when managed, valued, and understood correctly, it can be an important part in living a happier life.

I Was Eavesdropping

I probably shouldn’t admit this, but I had a chance while at a coffee shop to eavesdrop on a sales pitch delivered by another investment advisor to a prospective client and I took it. After the requisite 10 minutes of get-to-know-you small talk with the color brochure placed conspicuously on the corner of the table, the conversation segued into the “what are you looking for in the management of your investments?” question.

Unfortunately, I think the client gave the most common, but the most wrong answer: “You know, I really am not an investment guy. I just want once or twice a year to have an update delivered to me that shows all of my investments on one page. Maybe showing me how much they are up or down, and showing a track record of growth over time. And since I’m conservative I’d really just like something that keeps up with the market.”

The only person who loves that reply is the advisor. How hard is it to deliver a summary of investment performance on a single sheet of paper? How hard is it to print color graphs and stick fancy logos on them? How hard is it to send an update and then put the client file on the shelf for another six months? How hard is it to try and “match the market”? Not very hard at all and I guarantee that anyone with even six months experience in this business can deliver what the client said he wanted.

A better answer by the client would have been this: “I am looking for my investment plan to directly relate to the happiness I’d like to feel about money right now. I am looking for my investment plan to be tied to my goals of life experience, to my sense of financial responsibility, and to the relationships with people whom I care about.  I am looking for my investment plan to help me make daily decisions about my money and my priorities. I am looking for my financial reports to be translatable from numbers into qualitative improvements in the quality of my life. I am looking for a gain to my financial knowledge, not just information.”

Seeking expertise on the execution of an investment plan is wise. Leaving open to interpretation what you want and expect from the advisor you hire is not.

Common Character Traits of the Rich

I read an article today about research done on common personality traits of the financially “successful”.  They were listed as:

1.       A propensity to plan correlated with a higher than average accumulation of wealth regardless of annual income.

2.       Financial literacy regardless of math confidence correlated with a higher accumulation of wealth.

3.       Having feelings of powerlessness ( as reported by the study’s subjects) correlated with a lower accumulation of wealth.

4.       Conscientiousness and emotional stability were most directly linked to a greater accumulation of wealth.

Each of the four traits above demonstrate the benefit of living with purpose and intention.  Whether you want to be happier at work, or do better with your retirement saving, or be a better spouse, you’d better pay attention to the list above because not in the top 4 is “cross your fingers”.

I often meet people extremely frustrated with their financial situation and I see just as many people with low incomes report frustration as I do people with high incomes.  In fact, those with higher incomes tend to report even more frustration because they feel they’ve let their good opportunity “slip away”.  Conversely, I get to meet people who feel extremely confident in their financial position regardless of how much they make.  When I ask them why they feel comfort and contentment almost without exception they say “because we’re living just as we’d planned”.  Perfect!

People ask me all the time for financial “tips” and for ways to save more for retirement, for college, etc.  And while in the middle of everyone’s unique financial plan there lies a lot of important details that require examination and hard work, I believe the universal “tip” for financial wellness is to create a long-term habit of doing everything on purpose.  Purposefully manage your career.  Purposefully be the parent you want to be.  Purposefully stay healthy.  Do those things and your finances cannot escape the power of your control if you choose to exhibit it.

So look at the list above again and think about how planning, how educating yourself with the realities of financial engineering, how feeling empowered, and how awareness and empathy of the world around you can make you more capable of accumulating and acquiring the kind of life (both financially and otherwise) that you want. 

Tax Management In Your Investment Portfolio

Many people are once again starting to see some of their mutual funds pass along taxable income.  Such is the “benefit” of recent improvements in the returns of various markets.  Some of us haven’t seen taxable income from our investments for awhile so it’s time again to review what it means to exercise good tax management in an investment portfolio not already in a tax-deferred arrangement (IRA, 401(k), etc).

Right now if your investments are held in a taxable account you might be exposed to paying tax regardless of whether or not you took money out of your account.  This could be a bummer because now you might actually have to take money out in order to pay the tax , reducing the amount left in the account to grow into the future.

So good tax management tries to avoid or reduce this problem by doing three things:

1.       Timing of portfolio changes.  Good tax management models pick appropriate times to buy/sell securities so that it doesn’t lead to a gain.  For example, bad tax management might rebalance your portfolio on a quarterly basis no matter what, possibly triggering a gain to you and exposing you to tax.  Good tax management would say STOP with the rebalancing merely because it is the start of a new quarter if it would create an unnecessary tax liability.  Good tax management is more sensitive to timing the intricate interior changes to your portfolio. 

2.       Tax-lot activity.  Basically, tax-lot activity is a portfolio-management function that searches your entire portfolio to try and harvest any losses (which reduce your tax liability) to counter any taxes caused by growth.  This obviously requires very detailed awareness of all the elements of your portfolio on a regular (i.e. constant basis).  Good tax management follows a disciplined search for opportunistic offsets to tax liabilities.

3.       Choosing tax-advantaged vehicles.  Good tax management looks for acquiring underlying securities that might be less likely to create taxable gains.  Choosing stocks and funds that don’t pay dividends, that don’t produce realized capital gains, that aren’t subject to federal taxation, are examples of how to create a good tax-managed portfolio from the ground up.  Good tax management selects specific investments most likely to be tax-friendly.

The overall goal is to build the entire model around protecting your investments against tax without eroding the return performance of the portfolio.  Careful selection of the right asset managers who are specifically good at tax management is absolutely critical.  Like any specialty in any industry it takes years of proven performance to demonstrate a real talent.  You can’t just “wing it” when it comes to good long-term tax management.

Is My Passion Good Enough For You?

Investments and estate planning and tax management can be very boring.  I think I’ve got some skill and understanding in many different areas of financial planning and counsel, but it isn’t a passion.  But what IS a passion, and what has become a personally-transformative realization is that I am extremely passionate about not missing out on living the way you truly want to live.

Number one on nearly every list of excuses as to why people aren’t happy, or don’t pursue bucket-list experiences, or fight in their marriage, or put off spending time with their kids, or don’t take vacations, or don’t quit jobs that they hate is MONEY.  And I can't tell you how much I hate that.  No one on their deathbed ever says “I wish I would have worked more”.  No one ever says at the end of their life “I wish I was less giving, less adventurous, less caring, less friendly, less compassionate, less loving.”  A full life, a happy life requires that you have experiences and relationships that supersede any financial status or position.

So it would seem at first that money is enemy #1 but I don’t believe that.  What I think is enemy #1 are our expectations of what money means to us, can do for us, and the order in which we place it in our thinking about how we plan to live our life.  Living an intentional life just like you want and managing your money wisely can coexist.  In fact, I argue that they are co-dependent.

My “best” clients aren’t wealthy.  They occasionally struggle with unexpected expenses.  They worry about rising college tuitions.  They haven’t bought a new car in 7 years.  But they have the best vacation photos of their kids taken over the years.  They both love their jobs.  They give a substantial amount of money away to their church and non-profits that they like.  They have a list of experiences and adventures a mile long.  They don’t work late or on the weekends.  They have a huge collection of friends.  They are active and athletic.  They smile a lot.

Not everyone wants a financial advisor who wants to focus first on being happy.  Not everyone wants a financial advisor telling them to think about being a nevertiree.  Not everyone wants a financial advisor suggesting they find a non-profit who will take more of their money.  Not everyone wants a financial advisor who advocates carrying around a bucket list.  But I want clients who do and who expect me to help them manage their finances so that they can focus on living more like they intend.

What Is Different About Investing Today?

Everything.

Are you…

·         Actively managing assets vs. just buying and forgetting?

·         Choosing the best investment managers?

·         Following bad trends too long?  Not following good trends early enough?

·         Tracking your investments with your goals?

Do better.

·         Look for better tax-management opportunities.

·         Find missing asset classes that fit your allocation profile.

·         Question unknown/unclear fees and expenses in your portfolio.

·         Rid your portfolio of redundancy, overlap & inefficiency.

·         Stop following trends too early or too late.

Why Not You? The Best Jobs On The Planet

I was talking to a friend about the Money Magazine article that rated the top 10 companies to work for.  He was kind of exasperated that he never had anything close to a single experience that some of the employees at these 10 firms have on a regular basis.  I’ve included the link to the online article below, but here’s a short list of some of what the “best” companies provide their employees:

·         Adoption benefits (time, money, and job security)

·         Telecommuting options to allow for oversees living in order to volunteer in impoverished areas

·         4-year college financial aid (loans & scholarships)

·         On-site childcare

·         Paid time off for volunteering and community involvement

·         Adventure trips

·         Self-designed/created jobs

If you read the article, notice how many employees comment about their employers supporting and encouraging the elusive work-life balance.  Notice how many employers promote life experiences and doing “what’s right”.  Notice how many employers freely heap on the personal responsibility and authority to every level in their company.  Notice that not a single employee commented on their level of pay.  Notice that not a single employee commented on their love of the actual product provided by their employer. 

Instead, each employee who raved about their employer felt appreciated and a personal connection with their peers and their management.  People want to work.  I’m convinced of that.  But we complain about our jobs when we feel no connection to the people that we work with/for and when the job doesn't feel like it is of our own design and intention. 

I’ve said before that I find it sad that most people will spend 40 years working in jobs that don’t give them a charge, just a paycheck.  40 years is a long time to not be happy about how you spend the majority of your day.  So you have three choices to make things better:

1.       Go search for a job at a place that excites you

2.       Create for yourself the exciting environment at the job you currently have

3.       Start your own business and run it how you want

http://money.cnn.com/galleries/2011/pf/jobs/1101/gallery.best_companies_employees.fortune/index.html

Kiva.org Microloan Repayment Update - This Works!

Sol Y Estrellas Group
Grocery Store, Mexico

51% repaid

 

 

 

 

Rose Wanjiru Njuguna
General Store, Kenya

16% repaid

 

 

 

 

Magdalena Agsunod's Group
General Store, Philippines

79% repaid

 

 

 

 

Check out their stories on our earlier blog posts at:

http://wallfinancial.blogspot.com/2010/11/in-september-i-posted-on-powerful.html

 

http://wallfinancial.blogspot.com/2010/09/sharing-our-blessings-thru-finance.html

 

Effort, Postive Attitude, Indomitable Spirit

It can be a challenge to consistently maintain the amount of energy that’s necessary to live the way you want.  How many diets fall by the wayside?  Or plans to exercise?  Or plans to live within a budget?  Or putting more money into your 401(k)?  Or working at creating a better career? 

Great ideas and plans can be easy to start, but difficult to maintain.  If you think about all aspects of your life, you probably have many different goals for betterment and improvement.  Most want closer relationships, more financial happiness, a greater sense of importance, a stronger faith, more free time, etc.  The hard part is the work that it takes to get there and the motivation to keep working at it no matter what.

So try this: borrow or invent a mantra or philosophy for success that you believe in and write that down where you see it every day.  There are lots of them out there from which to choose if you can’t figure out a way to express your own.  Friends of mine at my martial arts school will recognize this one: 100% effort, positive attitude, indomitable spirit. 

Once you write it down somewhere where you see it all the time, it will remind you what it will take for you to direct your own success.  I promise you that this constant reminder will help you make better everyday/little decisions which will add up to the habits that build the life that you want.  If you do this and it doesn't work for you, send me a note and tell me - you'll be the first.

We all need encouragement and guidance and the best of both comes from within ourselves.  So commit yourself to what you believe, remind yourself of it, expect yourself to comply, and watch how much closer you get to living how you believe.

What's Next

I have no crystal ball, so take everything I say as simple musings about what is possible, but I think the foreseeable future will present us with the following conditions that will affect our financial decision making:

·         Information will be easy to get, true knowledge will not be.

·         Changes in policy (or even the anticipation of changes) will affect the business climate.

·         Market changes will be faster, steeper, and more subject to overreaction.

·         Asset performances may not follow longest-term historical norms.

·         Historically divergent asset classes will have moments of high correlation.

So I’m advocating financial consumers do the following:

·         Pursue market intelligence and insight, not just data.

·         Truly understand the benefit of micromanaging diversification.

·         Believe in the benefits of oversight, access, and due diligence.

·         Don’t simply “buy and forget”.

·         Maintain rigorous discipline.

Stand In The Sunshine For A Moment

I want to be sure I’m not demonstrating to you a Pollyanna attitude toward the current state of the economy, but I frequently get irritated with the short-term reporting by news sources and other blogs that thrive on doom and gloom.  So keeping in mind that I’m well aware of the challenges we still face, I want to share a few newsy tidbits I think we should enjoy reading:

* U.S. manufacturing continued to expand in December, as the

Institute for Supply Management’s (ISM) Manufacturing Index

climbed to 57 for the month, its best reading since May.

* The ISM’s Non-Manufacturing Index climbed to 57.1 in December,

led by robust economic activity in the services sector.

* Following a 0.7% decrease in October, U.S. factory orders

surprisingly registered a 0.7% gain in November, according to the

U.S. Department of Commerce.

* According to the U.S. Department of Labor, the economy added

103,000 jobs in December, while the unemployment rate reached

its lowest level since May 2009, falling to 9.4%.

* The U.S. Department of Commerce reported that construction spending

posted its third consecutive monthly gain (0.4%) in November.

* The Mortgage Bankers Association’s (MBA) index increased 2.3%

last week. Refinancing applications were also up, rising 3.9%.

* U.S. Department of Labor figures showed that the labor market

continues to improve, as applications for jobless benefits declined

to their lowest level since July 2008.

None of these should necessarily affect any of your financial behaviors, but sometimes you just need to hear some good news.  I think these qualify.

Fearing Regret Is My Motivator

Is the picture in your mind of how you’d like to be living different from how you’re actually going through life?  If so, stop what you’re doing and change things.  A lot is at stake.

Nobody wants to say years from now that their life didn’t turn out as they’d wanted or expected.  I absolutely cringe when I hear people say things like, “retirement isn’t what I’d thought it would be”, or “I did all of that for this?”.  Regret is the worst feeling in the world because there’s nothing you can do about it.

But what you can do is take specific actions to avoid and thwart having future regrets.  Action taken today is the preventative medication against a future outbreak of regret.  Skeptical?  Try this:

1.       Pick something that you want to see yourself doing (travelling, writing a song, skydiving)

2.       Do it

3.       Pick something else (learning a foreign language, building a table, sitting on a beach)

4.       Do it

5.       Repeat steps 1-4

I’m not being cheeky, it’s serious and it’s actually very hard.  We have a tendency in this country to believe that our life is supposed to follow a path of thinking that today is supposed to suck so that tomorrow will be better, especially when it comes to our careers and financial planning.  I don’t buy it.

I have the benefit of being able to observe many people in different stages of career success, financial health, and happiness.  Those who seem to be at the highest levels in all of those areas are those that deny the “traditional” path of slogging through work and then praying for a good retirement and instead seek a balance between responsibility and life experience.  I see it so I believe it, and I wonder why it’s not a more popular way to live.

GIGO - Garbage In, Garbage Out

Garbage In, Garbage Out.  I feel that way about 95% of the financial plans I see people bring to me for review.  I don’t mean that 95% of the plans are garbage, I mean that 95% of what is contained in the financial plan is garbage.  I say this because when I ask clients about the plan someone wrote for them and as we review it together it is clear that either

a)      They don’t understand the substance of what is written

b)      They don’t know why all those charts and graphs are there

c)       Most critically, they never use any of it to help make financial decisions

Sometimes I think that financial plans are written and printed to try and make the advisor look good.  If the plan is 100 pages long and looks very complicated and is full of numbers and charts then that helps reinforce the message that the advisor is smarter than you and that you should listen to whatever they tell you. 

Barf.  Look again at your financial plan.  Go through it and mark every page that helps you make a financial decision.  If you found more than 5% of the pages helpful to you, then you’re better than most.  If not, demand that your plan be written simply and succinctly enough so that you can actually use it.  If you feel you need your advisor to show you all of their homework and research before you trust their recommendations, maybe you need a new advisor.

KIVA Loan Update: Sharing Blessings Thru Finance

We have made three microloans through www.kiva.org and here’s evidence of how credit-worthy even the poorest of the poor are.  Read the prior blog posts http://wallfinancial.blogspot.com/2010/11/in-september-i-posted-on-powerful.html and http://wallfinancial.blogspot.com/2010/09/sharing-our-blessings-thru-finance.html .

·         Magdalena Agsunod's Group in Philippines (Activity: General Store) Total Repaid So Far: 58.40% of your loan

·         Rose Wanjiru Njuguna in Kenya (Activity: General Store) Total Repaid So Far: 8.32% of your loan

·         Sol Y Estrellas Group in Mexico (Activity: Grocery Store) Total Repaid So Far: 21.32% of your loan

Sometimes a hand up is more helpful than a hand out. You too can give someone a job where opportunities are virtually non-existent for as little as $25 at www.kiva.org.

Plan To Be A Nevertiree

According to a Wells Fargo study:

The average savings of 50-somethings is only $29,000, which comes out to an income of $190 a month over 20 years assuming a 5% rate of return.  According to the survey, only 33% of Americans have a detailed written retirement plan and 37% don't know how much they will need in retirement or how long they will be able to live on what they have saved.  The survey found that 72% of Americans now expect to work through retirement, with 39% saying they will work because they have to and 33% saying they will do it because they want to.

Do you think that the same survey taken 20 years ago would show 72% of Americans expecting to work through retirement?  I don’t.  So whether it’s empirical or intuitive, people are smart enough to realize that the retirement game has changed.  So if that’s true, do you want to be one of the 39% who think they’ll be forced to work, or one of the 33% who think they’ll want to work?  I know which group I want to be in and we can help you design a plan that incorporates an I’m-looking-forward-to-it retirement component.

Be more than just prepared, be in control.  Establish a plan that looks forward to retirement with realistic expectations and then you can live happy today knowing that you believe in the direction that you’re going.