Recently, I had the distinct privilege to join Sheinelle Jones on the Today show, discussing some rapid-fire personal finance issues in Simple Money style. Is now a good time to buy stocks? Is it a good time to buy, sell, refinance or renovate a home? We even discussed a version of the Simple Money Portfolio and my top two picks for cash flow apps that can improve your financial situation. Click HERE or on the image below to view the segment.
Michael Brundage had everything working for him: a great marriage, healthy children and a successful career in commercial real estate. But something—something big, but invisible—was missing, and the result was a depressive streak that led my friend and colleague to pursue therapy.
Then, in the middle of an early session, his therapist discerned the problem, which she immediately shared with Michael: “You hate your job. That’s the problem.”
Initially, Michael protested, somewhat confused. He was good at his job—very good—and it paid well, ensuring a more than comfortable lifestyle for his family. Wasn’t that what a job was supposed to be about? Indeed, several generations of Americans have bought into the notion that our work is primarily—if not solely—a means, not an end in itself.
“As a culture, we’ve collectively bought into the lie that work has to be miserable,” writes career expert Jon Acuff in his newest book, Do Over.
Michael had learned, in his words, “what a long shadow not liking your job can cast over the rest of your life.” So he decided to do something about it.
He read voraciously, including Do Over, in which Acuff offers a method to career management regardless of where you stand on the love/hate job continuum.
Acuff’s counsel applies to four different types of career transitions that everyone faces:
- A “Career Ceiling” is a negative, but voluntary, experience when “you willingly go to a job where you know you are stuck.”
- A “Career Jump” is a positive, voluntary move when “you decide to change companies, start your own company, or take a continuing education class to get better at your current job.”
- A “Career Opportunity,” such as a surprise promotion or an out-of-the-blue dream job offer, comes when “something awesome that is out of your control happens,” a situation that is quite positive but also involuntary.
- Lastly, the dreaded “Career Bump” is when you get “fired, lost your job in a layoff or graduated into an economy” rendering your chosen profession obsolete.
Do Over then offers four different types of personal investment we can make in terms of time, effort and money to help us capitalize on the positive career moves and hedge on the negative:
- A “Skills Investment” is a necessity in any career progression and insurance against hitting a Career Ceiling.
- A “Character Investment” is the “mortar between all the other parts.” It’s a lifelong pursuit that will help you get another chance when you fail and avoid the trappings of ego and vanity when you succeed. It’s also a necessity in the case of a Career Jump.
- A “Hustle Investment,” in addition to each of these, pays off in any stage of our careers, but is especially helpful when capitalizing on a Career Opportunity.
- And a “Relationships Investment” can provide both solace and generate new opportunities in the aftermath of a Career Bump.
Be forewarned that these investments are best applied proactively, not reactively. If you wait until you get the proverbial pink slip in your inbox, kick-starting all four at once could be a herculean task. Additionally, if you are seriously deficient in any of these categories, it could wipe out benefits gained from the others.
Fortunately, by the time Michael’s career revelation came, he already had a head-start in the character and relationship departments, enabling him to apply his efforts primarily to hustling and gaining necessary skills. The former came naturally to Michael, but the latter was no small effort, because his career search led him to become a financial planner, a professional change that required a lot of new education and a skills upgrade both deep and wide.
Knowing that he couldn’t just go out on his own with no experience in his new calling, he wisely gave his skillset a huge boost by partnering with an experienced planner esteemed in her community and profession. Thankfully, his own well-established character and relational foundation compounded the benefit of his hustle.
One of the great challenges we face in deftly navigating our careers—and especially in finding a job that is more than a means to an end (that is, a paycheck)—is in receiving wise counsel. There aren’t many career books I can recommend, but when marketing and leadership guru Seth Godin proclaimed Acuff’s Do Over “the best career book ever written,” it certainly got my attention.
Here is what I believe makes Acuff’s approach different from the overabundance of mediocre career books:
- He doesn’t take himself too seriously, displaying a great sense of humor throughout.
- He doesn’t make unrealistic promises. “There’s no such thing as a perfect job,” he says, encouraging us to make a “Grit List” of all the elements of work that we don’t love, even if we have our dream job.
- It’s not just for career changers. In fact, Jon agreed with my assessment that many of his readers may just find a new love for the job they already have after following his prescriptions.
- When appropriate, Jon uses an evidence-based approach. He employs a great combination of anecdotes, logic and research that support his hypotheses.
Best of all, regardless of the pragmatic benefits of applying the advice in Do Over, the investments you’ll make offer inherent value that simply leads to a better life, professionally and personally.
Investing is a pursuit best liberated from short-term analysis that tends to mislead more than edify. But 2016 was one of those rare years that provided a lifetime’s worth of education in a brief period.
Here are the three big investing lessons of 2016 that can be applied to good effect over the long term:
1) Discipline works.
January was greeted with panic-inspiring headlines like, “Worst Opening Week in History.” While hyperbolic, the truth in headlines such as these may have been more than enough to scare off investors frustrated by seemingly unrewarded discipline in recent years.
With threats of international instability (Brexit) and domestic volatility (historically wacky election cycle), there were ready reasons to cash in even the most well-conceived investment plan, opting for observer status over participant. But to do so would’ve been a huge mistake.
Indeed, the S&P 500 logged an impressive 11.9% for the year, with small- and value-oriented indices pointing even higher.
2) Diversification works.
How can a simple, balanced 60/40 portfolio have better outcomes than investors who try to “beat the market”? Through diversification. In 2016, a portfolio that invested 40% in watching-paint-dry short-term U.S. Treasuries — and that also diversified its equity holdings among asset classes that evidence indicates expose investors to outperformance — had a good chance of matching or even topping the S&P 500’s return for 2016.
Ordinarily, translating any single year’s performance into a lifelong investment strategy would be a regrettable mistake, but in 2016 the market mirrored the historical evidence suggesting that certain factors direct us to particular investment disciplines worthy of emulation. Or in simpler terms, stocks make more than bonds, small-cap stocks make more than large-cap stocks, and value stocks make more than growth — and it may be a good idea to reflect this in your portfolio.
3) Prognostication doesn’t work and punditry doesn’t help.
“Man plans and God laughs,” according to a Yiddish proverb. No, I’d never attribute divinity to the imperfect market, but I’m happy to attribute fallible humanity to those who attempt to divine the market’s next move.
Every year, Wall Street oracles discern what the market will do through notoriously errant forecasts. Every day, an endless stream of talking heads rationalize the meaning of past market moves and presume to postulate its future direction. More often than not, they’re just plain wrong.
Or, as my colleague Larry Swedroe bluntly advises, “You should ignore all market forecasts because no one knows anything.”
Great Britain’s exit from the European Union was supposed to unhinge the global economy, but most have already forgotten the meaning of Brexit. The market then sent clear signs that it preferred one presidential candidate over the other, followed by a rash of recessionary predictions in the case of an upset. But the markets processed the monumental election surprise before the next day’s market close — doing precisely the opposite of what the “smart money” said it would do.
I don’t mean to suggest that the market will always ignore macroeconomic events and political surprises in search of higher ground. But.
The market is going to do whatever the heck it wants, regardless of the balderdash-du-jour pundits and prognosticators say it will do. It will peak when it “should” plummet and it will sink when it “should” sail.
The market’s most predictable trait is its unpredictability. But that, of course, is why we also expect a higher long-term reward for enduring the market’s short-term risk.
Again, there is more danger in drawing too many conclusions from a single year’s worth of market history, but these lessons learned in 2016 are worthy of application every year.
American retirees are screwed. The 401(k) experiment has failed. Social Security’s going bust. Savers haven’t saved nearly enough and don’t have the means to improve the situation.
However hyperbolic, this is the message that has been sent and, for many, is indeed the way it feels. But how do the facts feel?
- Many companies have abdicated the role they once played in helping support employees’ retirements through defined benefit pension plans by promoting and then under-supporting defined contribution plans, like the 401(k).
- Most pensions that remain — even those run by states and municipalities — are “upside down,” lacking sufficient funds to pay what they’ve promised. The entity conceived to insure underfunded pension plans is also underfunded.
- Some large financial firms have filled many of the 401(k) plans they manage with overpriced, underperforming funds, and offered little in the form of substantive education for the masses now left to their own devices.
- After a six-year effort to ensure that financial advisors who manage retirement assets would be required to act in the best interests of their clients, there’s a corporate and political movement afoot for firms to reclaim potential lost profits if they were forced to do right by their clients.
- Even some of the individuals who initially conceived the 401(k) concept and lobbied for it have recanted their support, regretting it ever started.
Social Security Facts:
- The program intended only to be a safety net has become the primary financial resource in retirement for too many.
- The surplus funds received when the huge baby boomer generation paid in — which are now being used to help replace the inherent shortfall of smaller generations — are projected to run out in 2034, thereby reducing the system’s ability to pay benefits by 25 percent.
There — how does that feel, now?
It is in better understanding ourselves that even the most confounding financial decisions are made simple. Therefore, it’s entirely possible for a seemingly non-financial book to have a meaningful impact on your financial life, while the reverse is also true.
Consider, then, this list of my choices for the top five (mostly) recent books that can improve your life, work and financial serenity in 2017:
5) The Whole 30: The Official 30-Day Guide To Total Health And Food Freedom is not your typical diet book. I don’t do those. But I am fascinated by various “life hacks,” small behavioral changes we can make in our diet, exercise and sleep patterns that make life more livable.
My adopted home of Charleston might have been ranked the “Best City in the World,” but the state of South Carolina is earning a less distinguished label as a harbinger of the country’s worst pension crises. And yes, that’s crises—plural—because U.S. state and local government pensions have “unfunded liabilities” estimated at more than $5 trillion and funding ratios of just 39%.
What does that mean, exactly?
When a company or government pledges to pay its long-term employees a portion of their salary in retirement—a pension—the entity estimates how much it (and its employees) will need to set aside in order to make those payments in the future. An underfunded pension is one that simply doesn’t have sufficient funds to make its promised future payments.
Corporate pensions in the United States are in trouble, with the top 25 underfunded plans in the S&P 500 alone accounting for more than $225 billion in underfunding at the end of 2015. But states and municipalities are in even worse shape. This week, the Charleston-based Post and Courier estimated that South Carolina’s shortfall alone was at $24.1 billion, more than triple the state’s annual budget!
How did we get here?
There are two glaring reasons: poor investment decisions and greedy assumptions.
Advisors to President-elect Donald Trump have been vocal about rescinding the Department of Labor’s new fiduciary rule, introduced earlier this year to protect retirement savers from advice that isn’t fully in their best interests. The rule has already been under fire from the securities industry, and lack of presidential support could spell its ultimate demise.
As someone who has worked on both the fiduciary and non-fiduciary sides of the industry, I think revoking the rule is a bad, even dangerous, move. My rationale for such a position starts with my experience, early in my career, at one of the nation’s largest insurance companies.
“Look, you can set up your business any way you see fit after you’re successful. But right now? With a young family? You need to put yourself and your family first, and that means selling A-share mutual funds,” said my sales manager.
In other words, you must put your interests ahead of your clients’.
As a brand new financial advisor, I was having a heart-to-heart with my supervisor after laying out my plan for creating a fee-based business within the agency, which would have meant recurring revenue for the firm but apparently in much smaller increments than were preferable.
“A-share mutual funds” are a variety with some of the largest up-front commissions—for both the salesperson and the company they represent. Variable annuities were even better, generating more of a “front-end load.” Whole life insurance was the pinnacle of up-front commissions.
In the newbie bullpen, we were encouraged to sell in various and sundry ways. The general agent in charge of the Baltimore metro area—the self-proclaimed “big dog”—was, indeed, a large man. A former starting lineman for a recognizable college football team, I’m quite sure that he routinely watched the classic Alec Baldwin “motivational speech” from Glengarry Glen Ross (turn the speakers down if you’re at work or children are nearby).
I recently discussed this topic on the Nightly Business Report (at the 9:05 mark)
My favorite anecdote from that time, though, was my general agent’s big fish story: “When you get a big fish on the hook, I want you to set a noon lunch meeting at the Oregon Grille.” (The Oregon Grille is an excellent restaurant north of Baltimore in pastoral horse country, where most of us had never dined.) “Go to the restaurant 30 minutes early and introduce yourself to the maître d’. Let him know that you’ll be returning shortly to the restaurant with a guest, and that you’d like to be referred to by name.”
Who does the stock market “want” to win?
Hillary Clinton. This isn’t a partisan statement, but simply a statement of fact. There may be several indicators to which we could point, but the glaring one is this: When the FBI announced last Friday that a new slew of emails had been discovered that could impact its investigation and shed further negative light on Clinton’s handling of classified emails, the market sold off. Period.
But why? Is the market more Democrat than Republican?
No. In fact, you may recall the George Bush/Al Gore recount in 2000, when the market seemed to cheer in Bush’s favor. But what the market really doesn’t like is unpredictability, and it has asserted its opinion that Donald Trump is a more unpredictable candidate than Clinton.
Big bank fees are at an all-time high while the interest they pay is at an all-time low. Worse yet, evidence recently has come to light of the criminal abuse of a practice common among large banks since the fall of Glass-Steagall: cross-selling.
Cross-selling is rooted in consumer research that large financial institutions tend to salivate over. It shows that customers are more profitable for longer when they own more products. How else could they get us to settle for deposit products for which we pay them? Does this absurdity leave you wanting to bolt the big banks?
Fortunately, you have alternatives. Here are the top four:
1) A good option for most is to flee the big brick-and-mortar bank for its younger virtual sibling: the online bank. Online banks, which lack the overhead of their more traditional rivals, can offer higher interest rates, lower fees, free ATM withdrawals and low or no minimum balance requirements. And they do.
I’ve been using an online bank for several years now and haven’t paid a single ATM fee for that entire time—and I can go to any ATM in the known universe (seriously). In the past year alone, I’ve received more than $200 in ATM fee rebates!
I recommend that you choose an online bank that best serves your needs and lifestyle. Mine, for example, offers unlimited ATM reimbursement, but others will cap the reimbursement amount or restrict you to a (typically large) number of “free” ATMs. Those banks, however, may pay a higher level of interest than my bank. Nerdwallet did an excellent job summarizing the best online checking accounts of 2016.
You’re no fool. But let’s imagine for a second that a major public figure said something—something false—over and over (and over) again. Regardless of its questionable veracity, is there a chance you’d be more likely to believe the proclamation simply because you’ve heard it often and recently?
Like it or not, the answer is an emphatic “Yes.”
You and I are more likely to believe something is true when it’s readily available—that is, when we’ve heard it frequently and, especially, when we’ve heard it lately. This phenomenon is dubbed the “availability heuristic,” and even though it was discovered and named (by Amos Tversky and Daniel Kahneman) more than 40 years ago, it likely hasn’t caught on in the broader public awareness because its title includes the word “heuristic.”
Nonetheless, the availability heuristic’s power to persuade is not lost on marketers, salespeople, lobbyists and politicians. They use it on us all the time. But let’s explore the errant biases in investing, in particular, that while readily available often lead to sub-optimal outcomes.
Active vs. Passive
The debate rages (and no doubt will continue to do so) over whether active stock pickers are able to beat their respective benchmark indices. The implications seem simple: If fee-charging money managers aren’t persistently outperforming their benchmarks, we likely should not be paying them for underperformance, right?
Since her early 20s, Danica Patrick has driven a racecar for a living, speeding 200 miles per hour around a crowded track bordered by concrete walls. It’s dangerous. Really dangerous. And she recognizes that.
“There are things that happen in the car that you can’t plan for and that are out of your control, like a tire blowing on you or an engine blowing up or a crash that happens in front of you or someone hits you,” Patrick told me in a recent interview. “So no matter what your skillset is, those things just happen. Absolutely it is a risk.”
But it’s a risk that she has chosen to manage, in part, with life insurance. Patrick has owned life insurance since she started racing, and the subject is important enough to her that she now advocates on behalf of Life Happens, a nonprofit founded to help consumers make smart insurance decisions.
Commendable though it sounds, I wanted to know more about why. Why was she motivated to buy life insurance at an age when most people don’t even think about it? Why did she feel she needed life insurance—then and now?