{"id":1076,"date":"2015-04-04T15:17:36","date_gmt":"2015-04-04T23:17:36","guid":{"rendered":"https:\/\/alfieland.com\/?p=1076"},"modified":"2015-04-12T11:06:13","modified_gmt":"2015-04-12T19:06:13","slug":"what-ive-learned-about-money-and-money-management","status":"publish","type":"post","link":"https:\/\/alfieland.com\/?p=1076","title":{"rendered":"What I\u2019ve Learned About Money and Money Management"},"content":{"rendered":"

\"money101\"<\/a>\u2026providing investment advice has been my profession since December, 1983. Over these many years, I\u2019ve experienced the coming of the information age, the birth of social media, countless geo-political crises, global financial meltdowns, the .com boom\/bust cycle, the emergence of the Asian Tigers, many wars, many recessions including \u2018the great one,\u2019 significant market crashes, a broken \u201cBeltway,\u201d a tax code that is FUBAR, \u201cirrational exuberance,\u201d credit crunches, religious fanaticism and terror.\u00a0 Each of these impacted capital markets in no uncertain terms, yet we manage to navigate through the morass.\u00a0 Inspired by Senior Editor Donnelly of Money Magazine who wrote, \u201cWhat I\u2019ve Learned\u201d after the \u201987 crash, I offer \u2018what I\u2019ve learned\u2019 and curiously, our lessons are quite similar:<\/p>\n

He says, \u201cNOBODY, no matter how able or well intentioned–not my broker, not my accountant, not the manager of my mutual fund, not my brother-in law–cares as much about my money as I do.\u201d\u00a0 Amen to that!\u00a0 Yes, we attempt to deliver the very best in the dispensation of financial advice and to that end we devote countless hours in the process yet still, we are in a business for profit.\u00a0 Steven Forbes said it best\u2026\u201dboth my father and I agreed there is more profit in selling financial advice than subscribing to it.\u201d\u00a0 As advisors, we are not always right but we truly try to do the right things. Yet in the end, you are closer to your money than are we.\u00a0 Why?\u00a0 Because it\u2019s your money.<\/p>\n

Diversify<\/h2>\n

\"Diversify\"<\/a>\u2026that is, hold many asset classes simultaneously and further diversify within each class.\u00a0 Own stock, but hold various sectors of the market\u2026some big cap, mid cap and small cap companies.\u00a0 Diversify even further with both domestic and foreign companies.\u00a0 Hold some \u2018value\u2019 and some \u2018growth\u2019 companies.\u00a0 Own bonds\u2026some US Treasuries, high yield and high grade corporate bonds and some foreign bonds.\u00a0 For those who are tax conscious, use tax exempt municipal bonds.\u00a0 Then look to hard assets such as real estate, commodities and some alternative investments.\u00a0 There is no one single best investment.\u00a0 All of these classes have their day in the sun as well as the pit.\u00a0 They will rotate through cycles.\u00a0 The idea is to own investments that do not correlate with each other.\u00a0 Manage your assets from an aggregate and bottom line perspective rather than having to win every battle.\u00a0 It is winning the war that counts!<\/p>\n

Investment Objectives<\/h2>\n

\u2026identify objectives and a timeline before investing dollar one.\u00a0 You might say, \u201cI have just one objective\u2026make money.\u201d\u00a0 Thanks!\u00a0 That doesn\u2019t help. There are five specific objectives which need to be prioritized:
1.\u00a0\u00a0 \u00a0Preservation of Capital-Safety
2.\u00a0\u00a0 \u00a0Liquidity-Access Without Penalty
3.\u00a0\u00a0 \u00a0Income Production-Send Those Checks
4.\u00a0\u00a0 \u00a0Capital Appreciation-Growth
5.\u00a0\u00a0 \u00a0Tax Advantage-Pay The Least Amount to \u2018Sam\u2019 and the Governor
The priority of these objectives will change as life changes.\u00a0 For example, most of us will need income from our portfolios upon retirement but not during the accumulation phase.\u00a0 We will be more growth oriented in our youth (more risk) than when we are approaching retirement (more safety).\u00a0 Arbitrarily investing money without an objective is like setting out on a boat without a rudder.<\/p>\n

Manage Risk<\/h2>\n

\"risk\"<\/a>\u2026this heading did not say avoid risk.\u00a0 In order to grow money, it is necessary to subject a portion of each portfolio to some risk and it is equally necessary to know your risk tolerance.\u00a0 There are many litmus tests or \u2018what ifs\u2019 which may be applied to assist in making that determination.\u00a0 While uncooperative markets can shake the most intrepid growth investors, most know the long term end objective is more important than the comfort of the ride.\u00a0 A way to think about risk is to board a train whose destination is one of your choosing, but the ride is bumpy\u2026very bumpy at times, but you get there.\u00a0 If that bumpy ride disturbs you to the extent that it is costing sleep, then board a train whose ride is very smooth.\u00a0 The price you pay for that decision is\u2026it probably won\u2019t take you where you want to go.\u00a0 All investors must determine which is more important\u2026 the quality of the ride or the destination?\u00a0 Trading sleep for profit is a miserable way to accumulate wealth.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0
Timing<\/h2>\n

\"timing\"<\/a>… \u201cis all\u2026but impossible\u201d says Donnelly.\u00a0 There is never a good time or bad time to make a good long term investment.\u00a0\u00a0 Market timers are luckier than good when they hit it right.\u00a0 They are often wrong.\u00a0 As the ol\u2019 saying goes, \u201ceven a broken clock is right twice a day.\u201d\u00a0 To reduce volatility, consider dollar-cost-averaging. This is a strategy whereby one invests regular amounts of money at regular intervals.\u00a0 It certainly does not eliminate risk or guarantee profit, but rather makes the ride a bit smoother under most circumstances.\u00a0 Like everything else in our lives, there is a trade off.\u00a0 If your investment runs to the upside, you\u2019ll miss some of it.\u00a0 If you experience a downside, at least you are accumulating shares at lower prices and patience often pays off when conditions become more favorable.\u00a0 No guarantees from the management!<\/p>\n

Plain Vanilla<\/h2>\n

\u2026if considering an investment you do not understand, avoid it.\u00a0 There are many investment vehicles, strategies and tactics that are pretty straight forward.\u00a0 Assuming you have devoted a fair amount of time to studying an \u2018opportunity\u2019 and still cannot make sense of it, it is most likely that someone(s) does not want you to understand it.\u00a0 The same little principle applies to politics and legislation.\u00a0 This is a big red flag.\u00a0 I have found simpler is better, although some might say \u2018simpler is the sure way to hell.\u2019<\/p>\n

Nothing is Forever<\/h2>\n

\"chart\"<\/a>\u2026Nancy takes issue with this statement and I\u2019m always careful to amend it with, \u201cexcept for us.\u201d\u00a0 Silly girl!\u00a0 She could do a lot better!\u00a0 All investments go through cycles and it is important to know that today\u2019s little darling is often tomorrow\u2019s donkey and vice versa.\u00a0 Look at any chart demonstrating rotation of sectors.\u00a0 The former Chairman at Oppenheimer Funds, John Fossell, always invested his retirement plan with the year\u2019s worst performing sector, annually.\u00a0 This is a prime example of \u2018buy low, sell high.\u2019 Over time, he did quite well.\u00a0 Again, no guarantees from the management!\u00a0 \u00a0<\/p>\n

Wealth Accumulation<\/h2>\n

\"monopoly-run\"<\/a>\u2026one of my favorite topics.\u00a0 Let\u2019s just say that wealth accumulation is not an event.\u00a0 It is a process.\u00a0 Rookie investors are often driven by Wall St. movies or a buddy\u2019s success story in picking the right stock(s) at the right time which resulted in a \u2018killing.\u2019\u00a0 This is good luck\u2026not a plan. Regular investing in diversified asset classes and sectors is a better solution.\u00a0 To accumulate wealth one must be committed to that idea and disciplined enough to execute the strategy.\u00a0 If each of us set aside a fixed amount of money to invest with each paycheck and increase that amount with each pay raise by the same percentage, that pot starts to look like something over several years.\u00a0 Over many years, it becomes considerably more than just something.\u00a0 Each investor must determine the appropriate amount to commit. There is no set number.\u00a0 A good rule of thumb is to establish a percentage of each paycheck where it hurts a little, but does not deprive the necessities.\u00a0 The adage, \u201cpay yourself first\u201d works.<\/p>\n

Insurance<\/h2>\n

\"insurance\"<\/a>\u2026life, health, property, casualty, long term care, errors and omissions or disability insurance for any loss is a waste of money IF you have the WILL and MEANS to self insure.\u00a0 This is not a popular notion and will, no doubt, draw lots of criticism\u2026especially from the insurance sales people.\u00a0 The only insurance worthwhile is \u2018last to die\u2019 where both spouses are insured but the policy does not pay until the last to die dies.\u00a0 This a very effective tool in saving a sizable estate from the ravages of taxes imposed upon heirs\u2026especially when the policy is owned by an \u2018irrevocable life insurance trust.\u2019\u00a0 I\u2019ll wait to deal with the slings and arrows from detractors.<\/p>\n

Primary Residence<\/h2>\n

\u2026for many, our homes have turned out to be our best investment.\u00a0 Remember, real estate is an investable asset class.\u00a0 The \u2018however\u2019 part of the equation is\u2026I don\u2019t have to paint my stock portfolio every few years, nor do I pay property taxes, home owners insurance premiums, a gardener, a pool guy, a roofer, a tree surgeon, a pest control service, earthquake insurance premiums, fire zone insurance premiums, flood insurance premiums, garage door service maintenance, hardscape maintenance, and the list goes on and is as long as my arm.\u00a0\u00a0\u00a0 \u2018Nuff said!\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0<\/p>\n

Debt<\/h2>\n

\"poor\"<\/a>\u2026own assets that appreciate and rent (lease) assets that depreciate.\u00a0 NEVER borrow money to buy a depreciating asset.\u00a0 Borrowing is not a great thing for a host of reasons not the least of which is money is not free.\u00a0 Debt is generally expensive, but necessary for most of us\u2026especially when buying a home, financing higher education or resolving an emergency where options are limited.\u00a0 Debt service (interest) is the killer, especially with credit cards.\u00a0 Try to zero out your balance at the end of each cycle which means use the card as a convenience rather than someone else\u2019s piggy bank.\u00a0 If you can\u2019t afford to 0 out at the end of each cycle, then you can\u2019t afford to buy it.<\/p>\n

It\u2019s Different This Time<\/h2>\n

\"dice-toss\"<\/a>\u2026nuh uh!\u00a0 It\u2019s never different.\u00a0 Each time the market(s) goes into that dark place or we experience \u2018irrational exuberance,\u2019 there is always a gaggle of financial wizards who insist, \u201cthis time it\u2019s different\u201d inferring the apocalypse is upon us or the unprecedented boom has just begun.\u00a0 Remember the late nineties when any start up \u2018dot com\u2019 was a little darling even though they never made any money?\u00a0 Everyone on Wall St. was giddy and believed we were entering a \u201cnew paradigm.\u201d\u00a0 After the bust, the word \u201cparadigm\u201d became a four letter one.\u00a0 It is EPS (earnings per share) that drives a company.\u00a0 Regardless of the calamity or confidence, markets find their way to reasonability over time.\u00a0 Remember the \u201987 crash?\u00a0 It was a brief blip, but at the time it was believed to be the end of the world.\u00a0 We survived the .com bust of 2000, the terror of 911, the great financial crisis of \u201908-\u201909, the possible unraveling of the EU, on going wars, etc.\u00a0 In spite of it all, we find solutions to these financial woes and work our way through.\u00a0 Betting against American capital markets historically is a bad bet\u2026.just don\u2019t let your confidence get carried away.<\/p>\n

Concluding Remarks<\/h2>\n

\"Money-Bills\"<\/a>\u2026do not feel guilty when you neglect your personal finances. \u00a0Chances are you are more productive when applying time and talent to yourjob\/career\/vocation\/business.\u00a0 Most of us have earned more money and satisfaction through our work than our investments.\u00a0 Further, most investors rely on the expertise of financial\/investment advisors.\u00a0 So, don\u2019t sweat the small stuff.<\/p>\n

\u2026when markets are uncooperative as they are akin to be, take a deep breath and remember that your dog still loves you, and if your spouse loved you in the morning when you left the house, that will probably not change by the time you return home.\u00a0 Keep perspective on those things other than money that really matter.<\/p>\n

\u2026”budgeting is unnecessary if you live within your means.”<\/p>\n

\u2026don\u2019t be a short term player, but rather become a long term investor.<\/p>\n

\u2026during your working years, your portfolio is where you put your money as you make it and not a source of supplemental income.<\/p>\n

\u2026if you are fortunate enough to become wealthy once, don\u2019t make it necessary to do twice.\u00a0 Be Careful!<\/p>\n

\u2026the market is always right!\u00a0 Really?\u00a0 Yes, really!\u00a0 We have our doubts because we apply logic to a highly illogical marketplace.\u00a0 This is where we err.\u00a0 That is to say all transactions require both a buyer and seller.\u00a0 The strike price is agreed upon by both parties.\u00a0 Specific value assigned to an asset is what each party is willing to accept as fair market value resulting in an agreement.\u00a0 Every car you see on the freeway is the result of\u00a0 \u2018fair price\u2019 bargaining unless you are dealing with fraud.\u00a0 That \u2018fair price\u2019, be it high, low or in the middle is what both parties believe to be a good trade.\u00a0 Somewhat utopian, I\u2019ll admit.<\/p>\n

\u2026money isn\u2019t the only thing to consider when contemplating retirement.\u00a0 After answering the following three questions, you\u2019ll know:\u00a0 Do I have something to do?\u00a0 Do I have something to love?\u00a0 Do I have something to hope for?<\/p>\n

\u2026Donnelly closes his piece with, \u201cDespite all appearances, very few people of my acquaintance know what they are doing when it comes to investments or taxes.\u00a0 This is reassuring.\u201d<\/p>\n

\u2026I\u2019ll close mine by citing that not so quotable South Philly street philosopher, Dominick Marino (my dad) who said to my brother Jimmy and me, \u201cBoys, let me tell yiz sompin\u2019 about dat money ting… it makes good people betta and bad people woisa.\u201d\u00a0 BRILLIANT!\u00a0 Thanks pop!<\/p>\n

 <\/p>\n

Disclaimer:<\/h3>\n

What you have just read is not to be construed as personal investment advice but rather my general observations. Consult with your tax adviser, investment adviser, banker, insurance professional and attorney for official and personal financial advice. Alfieland.com is my personal blog site and is not to be regarded as a professional one. Information provided in this piece is delivered in the spirit of amusement and entertainment. Again, consult with your professionals for personal investment\/financial advice. Please take heed!
<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

\u2026providing investment advice has been my profession since December, 1983. Over these many years, I\u2019ve experienced the coming of the information age, the birth of social media, countless geo-political crises, global financial meltdowns, the .com boom\/bust cycle, the emergence of … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-1076","post","type-post","status-publish","format-standard","hentry","category-featured-story"],"_links":{"self":[{"href":"https:\/\/alfieland.com\/index.php?rest_route=\/wp\/v2\/posts\/1076","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/alfieland.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/alfieland.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/alfieland.com\/index.php?rest_route=\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/alfieland.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1076"}],"version-history":[{"count":10,"href":"https:\/\/alfieland.com\/index.php?rest_route=\/wp\/v2\/posts\/1076\/revisions"}],"predecessor-version":[{"id":1113,"href":"https:\/\/alfieland.com\/index.php?rest_route=\/wp\/v2\/posts\/1076\/revisions\/1113"}],"wp:attachment":[{"href":"https:\/\/alfieland.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1076"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/alfieland.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1076"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/alfieland.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1076"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}