Tomorrow my family will not only celebrate Thanksgiving, but my mother’s birthday too (talk about giving thanks!). A few years ago, a British tour guide called Mom “Susannah” (her real name is Susan), a nickname that has stuck. On her birthday, I like to re-run an article that I wrote a few years ago to honor her. I have edited parts, but the essence remains the same—today, it’s all about Susannah!
People often assume that because my father was a Wall Street trader and his father was the CEO of a publicly-traded company that my financial influences came through the Schlesinger side of the family. While that is true, it is also interesting to note that my mother’s clear, straight-forward world view about money significantly shaped my approach to finances and continues to imbue me with common sense wisdom. On the eve of her special day, it’s time to share with you some of her gems. You may recognize some of them from your own mothers!
Rich or poor, it’s nice to have money: My mother grew up in a middle class family that started to earn more money as she reached high school. In her formative years, her mother, a child significantly affected by the Depression, instilled in my mother the notion that while having money did not make you better than anyone else, it could provide security.
Money does not make you happy, but it can make your unhappiness more comfortable: This add-on to the previous mantra dovetails on Mom’s belief that money and planning can make many other problems, like health issues, easier to stand. This became clear as I watched my parents take care of their parents, three of whom lived into their nineties.
Money buys convenience and access—these things are inconsequential: Full disclosure here—my mother likes nice things, but she has always maintained that having a solid financial foundation provides opportunity and choice, both of which are far more important than jewelry, cars or fancy dinners.
Sound finances allow you not to worry about money: My mother watched many of her friends struggle with money issues throughout their lives and conversely, she also knew many people who had money and wasted their time trying to figure out how to get more. She has always believed that as long as she had what she needed, she could focus on other, more important parts of her life.
Never buy more house than you need: Mom is a realtor, famous for her line, “A house is like a man, there is more than one for you in the world.” A romantic she’s not, nor is she a fan of the idea that you should buy as big house as you can afford. I once heard her tell a client, “Don’t forget--you have to heat, air condition and take care of that big house too!”
I’d rather wear it than drive it: In the world of depreciating assets, Mom leans towards the kind that you can wear, not the kind you drive. She likes comfortable cars, but beyond that, she is not a fan of sinking lots of money into transportation. Clothes, now that’s another story…
Forget retirement---find something you love to do and do it as long as you possibly can: My mother’s father worked until he was 88 and that work ethic trickled down to her. The notion of retirement is foreign to Mom, so I suspect she will continue to work in some way, for many years to come. To her, retirement planning is really about finding the job that you want to keep doing for as long as possible.
Wednesday, November 21, 2007
Tuesday, November 20, 2007
Pre-Thanksgiving Reminder II
Two days and counting until your brain shuts down for weeks on end. Before the post-Thanksgiving affliction known as “Holiday Brain Freeze” sets in, I’m providing reminders about the economy, financial markets and your own personal investing. Yesterday I started with the big stuff, but today’s focus is you.
As the markets continue to gyrate, I am starting to hear from people who are hyper-focused on their investment accounts. There have been questions about whether people should “do” anything, like sell stocks, or move out of dollar-denominated assets. Despite being through difficult periods like this in the past, investors have short memories. Before we get into over-stuffed Thanksgiving week highs, today we are going back to one of my favorite topics: investors often are their own worst enemies.
According to reams of research, the average stock mutual fund investor has not performed as well as the S&P 500 index. Research firm Dalbar conducted a survey called “Quantitative Analysis of Investor Behavior” which compared the annualized return for the index versus the average stock fund investor from 1986-2005. During this time frame, the index returned 11.9%, while investors returned 3.9%. An 8% differential is amazing and I attribute it to the oldest lesson in the investment book: investors can be led astray by their emotions.
When they see that assets are dropping, they are tempted to sell, while when they are rising, they pile in. In other words, they sell low and buy high. I saw this first-hand over the past few weeks with the questions mentioned above. When stocks were making new highs in July, I did not field one question from a client or a radio listener who wondered whether they should trim gains or perhaps reduce risk. But now that volatility has gripped markets, the anxiety level is creeping into the minds of investors.
How can you manage these trying times? There are three distinctive steps that help seasoned investors withstand the ups and downs of the market. You know these deep down, but it’s worth a reminder, especially as the unofficial kick-off of the holiday season is upon us.
1) Create an investment plan that outlines what you are trying to accomplish. This plan should incorporate your risk tolerance and take into account your time horizon.
2) Prevent your emotions from taking over by crating an asset allocation plan that you periodically check
3) Integrate your investment plan into your larger wealth management plan.
And if you can’t seem to manage the process yourself, by all means, hire a professional who can. Sometimes professional management and peace of mind are well worth the price of service.
As the markets continue to gyrate, I am starting to hear from people who are hyper-focused on their investment accounts. There have been questions about whether people should “do” anything, like sell stocks, or move out of dollar-denominated assets. Despite being through difficult periods like this in the past, investors have short memories. Before we get into over-stuffed Thanksgiving week highs, today we are going back to one of my favorite topics: investors often are their own worst enemies.
According to reams of research, the average stock mutual fund investor has not performed as well as the S&P 500 index. Research firm Dalbar conducted a survey called “Quantitative Analysis of Investor Behavior” which compared the annualized return for the index versus the average stock fund investor from 1986-2005. During this time frame, the index returned 11.9%, while investors returned 3.9%. An 8% differential is amazing and I attribute it to the oldest lesson in the investment book: investors can be led astray by their emotions.
When they see that assets are dropping, they are tempted to sell, while when they are rising, they pile in. In other words, they sell low and buy high. I saw this first-hand over the past few weeks with the questions mentioned above. When stocks were making new highs in July, I did not field one question from a client or a radio listener who wondered whether they should trim gains or perhaps reduce risk. But now that volatility has gripped markets, the anxiety level is creeping into the minds of investors.
How can you manage these trying times? There are three distinctive steps that help seasoned investors withstand the ups and downs of the market. You know these deep down, but it’s worth a reminder, especially as the unofficial kick-off of the holiday season is upon us.
1) Create an investment plan that outlines what you are trying to accomplish. This plan should incorporate your risk tolerance and take into account your time horizon.
2) Prevent your emotions from taking over by crating an asset allocation plan that you periodically check
3) Integrate your investment plan into your larger wealth management plan.
And if you can’t seem to manage the process yourself, by all means, hire a professional who can. Sometimes professional management and peace of mind are well worth the price of service.
Monday, November 19, 2007
Pre-Thanksgiving Reminder I
Later this week we will celebrate the unofficial start of the holiday season. This fact may come as a surprise to you, considering that it barely has felt like autumn here in the Northeast, but indeed, the post-Thanksgiving affliction known as “Holiday Brain Freeze” is imminent. Before your attention is diverted to compiling your holiday shopping list, I am going to provide some reminders about the economy, financial markets and your own personal investing.
Let’s begin with some big picture stuff. You have probably been reading about the problems in the US economy, including housing woes, a falling US dollar and of course, a stock market that is well-off the highs of the year. In fact, I have rarely fielded so many questions about the potential for a recession after the economy has grown nearly 4% in the previous quarter. Still, it is widely expected that the current quarter will show a significant slow down and it is understandable that people are concerned. To quote my father: “things are rarely as good or as bad as you think.”
Because I am a trader, I always consider the biggest risk first: a recession. The definition of a recession is two consecutive quarters of negative growth. As noted above, the US economy grew by 3.9% in the third quarter of this year, so in order to be in a recession, things have to slow down – a lot. This is not to say that it can’t happen, but we do have a ways to go. And what if we do enter a recession? I am here to report that the US economy will be more than able to survive a recession and so too will you. Recessions are a natural part of the economic cycle and we should all stop worrying about whether or not one will occur: we will see more recessions and that’s OK.
What about the dollar decline? I have started to consider that now that the hysteria over the dollar has reached the mainstream media, our beloved greenback is more likely than not to stabilize from here. That being said, the fall of the dollar has many positive and restorative effects on the US economy by helping US exports and concurrently encouraging consumers to spend less on imports and save more. Remember those twin deficits? Well the falling dollar is correcting them, which is a good thing.
Finally, as my friend N. likes to say, there sure are lots of people “getting wrapped around the axel” about the stock market right now. Sure the stock market is off the highs, but it is not DOWN this year. And what if it does fall? Well, that means that new money going into your retirement account is purchasing shares at a lower level. If you are still in the accumulation phase of your life, market pull-backs actually benefit you in the long run. If you are about to retire or are already retired, then you should not be invested aggressively enough that a sell-off will blow up your long-term plan.
Tomorrow I will tackle a few more reminders before you drop-off into Turkey-induced la-la land.
Let’s begin with some big picture stuff. You have probably been reading about the problems in the US economy, including housing woes, a falling US dollar and of course, a stock market that is well-off the highs of the year. In fact, I have rarely fielded so many questions about the potential for a recession after the economy has grown nearly 4% in the previous quarter. Still, it is widely expected that the current quarter will show a significant slow down and it is understandable that people are concerned. To quote my father: “things are rarely as good or as bad as you think.”
Because I am a trader, I always consider the biggest risk first: a recession. The definition of a recession is two consecutive quarters of negative growth. As noted above, the US economy grew by 3.9% in the third quarter of this year, so in order to be in a recession, things have to slow down – a lot. This is not to say that it can’t happen, but we do have a ways to go. And what if we do enter a recession? I am here to report that the US economy will be more than able to survive a recession and so too will you. Recessions are a natural part of the economic cycle and we should all stop worrying about whether or not one will occur: we will see more recessions and that’s OK.
What about the dollar decline? I have started to consider that now that the hysteria over the dollar has reached the mainstream media, our beloved greenback is more likely than not to stabilize from here. That being said, the fall of the dollar has many positive and restorative effects on the US economy by helping US exports and concurrently encouraging consumers to spend less on imports and save more. Remember those twin deficits? Well the falling dollar is correcting them, which is a good thing.
Finally, as my friend N. likes to say, there sure are lots of people “getting wrapped around the axel” about the stock market right now. Sure the stock market is off the highs, but it is not DOWN this year. And what if it does fall? Well, that means that new money going into your retirement account is purchasing shares at a lower level. If you are still in the accumulation phase of your life, market pull-backs actually benefit you in the long run. If you are about to retire or are already retired, then you should not be invested aggressively enough that a sell-off will blow up your long-term plan.
Tomorrow I will tackle a few more reminders before you drop-off into Turkey-induced la-la land.
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