Archive for General Financial Planning

Nothing is Everything

I’m a fool for doing this, but I do read some comments on Facebook posts. I saw a rather touching one recently, where a young woman noted, “When you have kids, they’re your everything”. Boy, do I know what she means. In my uber-Mommy phase, I went so far as to wear a corduroy jumper  appliquéd with a teddy bear carrying a Christmas tree, just because it would delight my then-little daughter. Luckily there are no pictures.

Over time, I’ve also heard people declare their spouse, lover, job, and pets to be “everything”. Then there are the magic bullets we are asked  to believe in: the right eating program (vegan, low carb, low fat, clean eating, snore…), the cure for allergies, the perfect drug, the cure for pain—cancer—aging… Or the magic investment program that will make you a trillionaire without risk or worry or much effort on your part…gold, market timing, 1000s of methods of stock selection, buy and hold.

None of this is right or true.

Being the omniscient person that I am, I actually have the right method: diversify!

Let’s go with the personal, first. People who make kids, or a spouse, or any other person their everything tend to lose, not only that person, but just about everything else. So in the event of a divorce, or death, or just the time of life when they need to get their claws out of the other individual, they find they have nothing left.  My mom was my dad’s everything for more than 50 years; he disintegrated after her death. Kids grow up and you’re stuck with the spouse you used to have. Or you find yourself at 50, with no career, no wardrobe, out of date competencies, and a divorce. Sure, you love being with that adorable toddler, but make yourself get out without them. By 12 or 13, they won’t want to be your everything. I used to have a sign on my bedroom door:

Are you bleeding? Is the house on fire? Then, don’t knock.

Worked great with my kid. Not so much with the ex, which is at least one of the dozens of reasons he’s an ex.  And BTW, for heaven’s sake stop using your kid, dog, or cat as your FB profile picture. Your own identity will always be important.

All the magical bullet medicine is just one of the reasons I support universal healthcare. Hardly a day passes without some miracle nutritional scheme or magic cure on my Facebook feed.  The years since the discovery of penicillin and polio vaccines have made us all worship at the magic pill church—that there’s an easy cure for everything if we just swallow the (highly profitable to pharma and biotech companies) right pill or program of eating. Universal health care might put some restraints and cost controls on medipharma’s tendency to nuke everything, and if one bomb doesn’t work, 7 or 8 will be better. I’m way more worried about getting too much intervention than not enough.

Hearteningly, I am also beginning to see articles cautioning how over-medicated, endocrine disrupted, and un-resistant to bugs our bodies have become. Michael Pollan has offered us probably the most sensible advice: Eat food. Not too much. Mostly plants. No mention of juice cleanses or meal kits. Simple diversification.

And finally we get to my corner of expertise—investments. Scratch any two investment managers and you’ll find three opinions on what the correct investments are. What is the best allocation, the best asset classes, the best tax home? Does all this matter? Sure, that’s what we get paid for, and a good allocation can make a difference, a small difference but spendable in a big enough portfolio. But I’m here to declare something radical: the biggest difference is selecting a decent diversification and sticking with it.

That can be a target date fund. Seriously. I have some real problems and reservations about them, but it’s way better than putting all your money in the S&P 500 fund—which is still better than picking a stock or two that you’re sure is hot—or the so-called stable value fund. A target date fund gives you some diversity.

But should you put 50% of your stock allocation in U.S. and 50% in international? 2/3 US, 1/3 international? 10 funds instead of 12? In the big scheme of things, I can fiddle with allocation projections to give you just about any result you want, given your risk tolerance. But the best answer is—it doesn’t matter nearly as much as long as you diversify.

Accumulate something you haven’t spent on meal kits and Tofurky, then pick an easy, diversified fund. Once you get into 6 figures, you can start to benefit from selecting your own allocation—the small difference in specific allocations will start to be visible. And even though it’s heresy to many financial planners who salute the flag of mutual funds, I don’t think you’ll necessarily end up in a trailer by the river if you buy a few individual stocks. But don’t make those your everything, either.

Caveat: no specific investment advice is intended. Your individual investments should be selected based on your goals, risk tolerance, and other individual factors.

 

 

How to plan when you don’t know the future

Source: Yahoo finance

We live in uncertain times. I can’t think of any time in my life that that statement wasn’t true—we can never know the future. When it comes to investing and the stock market, predictions are pretty much worthless—since I bought my first stock at 28 years old, I’ve heard just about everything: don’t buy stocks now (whenever!), bonds are not really safe, Dow will hit 30,000, Dow will go down the tubes.

Most recently there was the expectation that the market would crash if the current incumbent was elected. Now there’s the worry that it will crash if he’s impeached. That might have some basis in fact. The S&P 500 declined about 50% from 1973 to Nixon’s resignation in August, 1974, according to this article. (While I remember Watergate, I wasn’t all that interested in the market at that time.) But as the article makes clear, a lot of other economic factors impacted that recession.

Analysis is perfect in retrospect. The best time to invest is usually some time before you did. Those of us who have faced challenging life circumstances—divorce, unemployment, illness—also know what it’s like to try to plan the future when that future seems radically altered. During those times, people often believe they have no future. But we always have a future (unless we’re dead); it’s just a different future than what we planned.

As I wrote in my client newsletter the day after the election (email me if you want a copy) we can take some protective steps no matter how uncertain our personal or political future seems.

Build an emergency fund

There’s just no substitute for this. In the middle of a crisis, it’s hard to increase it, so do your best to build it pro-actively. And if you’re in a situation where you need to draw it down, do so in the most frugal manner possible.

Improve your earning power

Get more education, build skills, get quality career counseling, and get out of the office and network. Think through ways to build a side income—gig economy, small business startup with LOW or no investment, whatever you can do.

Think through whether it really makes sense to quit your job to start a business: could you test the idea part time? Have you written a business plan and had someone else vet it?

Most important, guard against lifestyle creep. When you get a raise or earn extra, hold on to it! Use the improved earnings to build up your personal safety net.

Diversify your investments

For at least the past 10 years, I’ve been hearing how bonds are a terrible investment. During that same period of time, the Vanguard Total Bond Index mutual fund has had an annualized return of 4.17%–not great, but better than leaving it in your mattress, and beating inflation handily. People who had 40-50% of their portfolio in bonds during the 2007-2009 crash lost far less than those who were 100% in stocks. But in the doubling of the market after the crash, people who had abandoned stocks lost a ton of potential increases. Neither you nor I nor any of those genius active fund managers are going to make the right single bet on the market roulette wheel at any given time, so the safety move is to spread bets (investments) widely.

Take care of yourself

Making yourself sick is not going to cause one bit of change in an ex-spouse or corrupt politician. Eat well, see the doctor and dentist, exercise, and get a hobby—build yourself up and distract yourself with pleasurable activities to control how much you allow yourself to get worked up. People make very poor financial decisions under stress, so delay major decisions until you can think straight and get some expert input. On the other hand, don’t become paralyzed—not to decide is to decide (Harvey Cox)—and avoiding decisions for very long periods mean you’ve lost control over your own life.

Join something bigger than yourself

Times of turmoil are great times to join a group, take a class, do volunteer or advocacy work. You’ll feel less alone, find ways to get input on personal decisions, and learn how to exert influence on issues that concern you. Studying history, learning to draw, joining a book or investment club, or becoming active in a political group can all impact your personal success, life satisfaction, and ability to envision a future you can plan for.

 

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Anything but money: having self worth and control of your life

Used softball ball in Třebíč, Czech Republic.jpgIn his most recent newsletter, former Wall Street Journal columnist Jonathan Clements observes (correctly) that most of us will never be fabulously wealthy, that we should stop feeling bad about that, and that this bizarre cultural belief leads people to be discontent with any achievement, and to chase hucksters who promise self-transformation and lunatic investment schemes. (See the full text here, and consider subscribing—while I don’t agree with him on everything, it’s always worth a read.)

As I read this, I found myself agreeing with many of his points. He’s spot on when he points out that in fact we can’t be anything we want to be—neither he nor I will ever be a star athlete, and despite years of flailing away on various musical instruments, it’s dawned on me that I’m not going to have much of a concert career. He’s correct, in my view, that we should incorporate a dose of realism in our dreams and plans.

But, the entire article left me with a little downbeat of sadness. I think there’s an important diminuendo that has somehow overcome the melody. The main theme of our lives has become (in my lifetime) that your job is all important and determines your identity: your parents focus on that from early childhood (college education resulting in a job); you are encouraged to choose your major based on future employ-ability (and of course, college is the only option); you work instead of raising your own children (and women make less money because, in part, they take more time off for children even when holding down a full-time position). We are evaluated by where we live, what we drive, what schools our children attend, and on, and on.

I recently saw a number of comments that people in first class airline seats should be treated better—not with more perks (legit if you’re paying for them), but in terms of actual respect and politeness—because they paid for it. Human dignity has come to depend on the wealth attached to the person. Rather than encouraging solidarity among we have-nots, it foists the conviction that the only aspiration is to join the moneyed elite (note I did not say talented, or educated, or in any way meritorious outside of wealth). More than one person in this country aspires to arm candy and gold coated toilets.

It wasn’t always like this, and I’m old enough to remember differently. Long ago I wrote an article on the value of church youth groups. I will never forget the Orthodox youth leader who told me that, because of their religious beliefs and dress, many of the kids in his group were mocked and bullied at the public school, but belonging to the synagogue’s youth group gave them identity and a way to achieve success and form friendships. My parents, aunts, uncles, etc. never had careers. For the most part they worked pretty crummy and often unpleasant jobs. But my parents had a happy marriage, my mom and aunts had many friends, and I don’t think they felt inferior (except for a wish to have had a college education in my mother’s case.) They showed me that there are other ways to be happy and feel like you have worth and achievement—and most of these don’t cost much:

  • Amateur sports. My dad and my aunt both played after-work softball; my cousin was the star of his bowling team. You could be somebody, you could be a hero, you could hang out with a group and you actually were out getting some exercise.

 

  • Music and dance. My parents spent weekends square dancing for many years—traveling to other neighborhoods, challenging other groups, hanging out at each other’s houses afterwards. Dad might be loading trucks on the dock during the day, but he was president of the club on weekends.

Many kids attain a high level of expertise in music, then give it up entirely in college and never touch the instrument again, because after all that hard work, they know they can’t “make a living” at it. People who persist are pitied for trying to scrape together a living.  Parents never again show up at a musical performance if their kid isn’t playing.

I’m always charmed by the Hawaiian music traditions, where people get handed an instrument very early, and pick up an awful lot of amateur ability by sitting around together playing and singing with older family members. Before tv and electronics, it used to be like that here—or so my grandmother said.

 

  • Hobbies & crafts. Making something is an achievement, pure and simple. Having a passionate interest in some area or craft gives you groups to join, events to attend, and even the pleasure of being able to make snarky comments about someone less skilled or expert than you. My aunt had less than two years of high school, but she knew how to install a zipper and I’m afraid that part of her pleasure at church on Sundays was evaluating the (lack of) skill of all the other women in too-obviously homemade dresses. Of course, this was when most women still felt they could attempt to sew. But who has time? Where can you learn? And, as a friend once said to me, if you get any more craft-y, they’ll come and take back your University of Chicago degree.

 

  • Fix-it ability. My uncle spent his life as an injection molder. But he could work on anyone’s car, hang and tape drywall, re-plumb a bathroom and hook up a fuse box. (He had also been Illinois state chess champion in high school, and although he couldn’t read a note he played a mean piano by ear.) I don’t think he had much scope for achievement in his job, but my family admired him greatly—because, in our little group, Harold could do EVERYTHING. As far as I know, he was entirely self-taught. His job may have regarded him as an automaton, but in his “real” life he had agency: control and recognized ability.

 

  • Activism. My grandfather was a union man at the height of the struggle for fair wages and improved safety in the mines. He was somebody in his union, even if his employers thought he was ignorant and his life expendable. His co-workers admired him and he inspired them.

 

I think about money mostly all day, every day. I know it’s important. But what I’m adding on to Clement’s ideas is a plea that we find self-worth and recognition in ways that don’t depend solely on money. In fact, everything I’ve listed above doesn’t depend at all on a college education, or income, of even luck. And that’s a change in societal values that I’d like to see—and one we can seize for ourselves.

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