If You Don’t Like The Market Today, Just Wait Until Tomorrow

Originally in ForbesIn my hometown of Baltimore, there’s an oft-heard saying that seems especially applicable when, like now, the seasons are changing: “If you don’t like the weather today, just wait until tomorrow.” For whatever meteorological reason, it’s not uncommon for an absolutely miserable Monday to turn into a gorgeous Tuesday. Temperatures have been known to swing as much as 20 degrees inside of an afternoon.

A scientific view of stock market history, unfortunately, shows us an even greater propensity for unpredictability and volatility.

Even the years that we refer to as the “good” ones, in retrospect, test our mettle. For example, between 1950 and 2014, a span of 65 years, the S&P 500 ended the year with a gain 51 times (or in almost 80% of them). Not bad. But in how many of those up years do you think investors would’ve found themselves in a “losing” position at some point in the year?

Every. Single. One. 

Behavioral Economist Richard Thaler’s Message to Advisors: ‘Nudge For Good’

Originally in MoneyDaniel Kahneman and Amos Tversky legitimized behavioral economics—the study of how people really behave around money, as opposed to how economists say a rational person ought to behave.

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Then Richard Thaler and Cass Sunstein applied the lessons of behavioral economics to everyday life with their book Nudge. The duo nudged so successfully that in recent years, their prescriptions have been put to work in corporate retirement plans—and even public policy—on a global scale.

When I spoke to Thaler to discuss his newest book, Misbehaving, a series of stories documenting the rise of behavioral economics, he told me that he has a message for those who seek to employ his methods:

“Nudge, for good.”

And why does he say that?

The Market Volatility Survival Tool: True Grit

Originally in ForbesIs recent stock market volatility bugging you?

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Do you wince with every headline announcing Greece’s demise, China’s bubble(s), the Federal Reserve’s indecision or the Dow’s down day?

Do you sneak a peak at your portfolio’s performance more than quarterly (or perhaps even annually)?

Does market volatility tempt you to question your investment strategy, even if it’s well thought out and carefully implemented?

Does it weaken your resolve to resist the sky-is-falling siren song heard so frequently in the financial media, or the sales pitch du jour?

Having the right investment strategy is important—really important—and surely contributes to long-term success in building wealth. But no matter how superlative your strategy, it’s your willingness to stick with it that ultimately will help you meet your financial goals.

Budgeting Guide for the Rich

Originally in Forbes“You don’t really do this stuff—do you?” The question came from a major network anchor after the camera stopped rolling. The topic was budgeting.

He certainly isn’t obtuse, and he wasn’t being patronizing or condescending. It was a legitimate question that accurately reflects the underlying perception held by most people in any demographic–that budgeting is for those just scraping by and young people just getting started. A tedious chore reserved for those lacking the means to do otherwise. A humble state from which most of us hope to graduate.

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But this is a misconception. In truth, the budgeting process can help people at every stage of life and every income level articulate and align their deeply held values with their financial priorities, which is the first step on the path to integrating money and life. However, there is more to be gained from the discipline of budgeting (at least in terms of raw dollars) for those of means. Better said, there is less to be lost by families who earn especially high incomes. 

The Keys to Effective Budgeting: Autonomy and Automation

Originally in ForbesMost people avoid budgeting because they consider it an exercise in repressive tedium. But it doesn’t have to be. By applying the science of motivation, economic evidence and the art of creativity, the apparent boredom of budgeting and saving can be remade into part a life-giving financial rhythm.

In his book, Drive, Daniel Pink teaches us that most institutions still use outdated science to motivate. Known as the “carrot-and-stick” approach, Pink demonstrates that the archaic addiction many organizations have to extrinsic motivation is far less effective than intrinsic motivation, which comes from within. The most successful resolutions are those autonomously motivated. In short, the word could is more effective than the overused should.

So, please hear this: Only budget if you want to, on your terms. It’s up to you.

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‘The One-Page Financial Plan’—Simple, But Not Simplistic

Originally in ForbesSimple is hot, even fashionable. But in many cases, it’s for all the wrong reasons. Simple is easier to pitch, explain and sell, and therefore also easier to receive, understand and buy. But when simple devolves into simplistic, becoming a one-dimensional end instead of a user-friendly means, it’s no longer an advantage and may actually be doing damage. Not everything can be turned into a tagline, a rule of thumb or a short cut.

Therefore, when my colleague and New York Times contributor Carl Richards first asked me a couple years ago to think about what a financial plan might look like if it was constrained to a single page, I was skeptical. After all, I’d dedicated my life and work to helping people, primarily in their dealings with money, wholly through the written and spoken word. The fullness of that education seemed impossible to responsibly confine to a single page. Then I read Carl’s new book, The One-Page Financial Plan

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At 208 pages, it may be a tad shorter than most personal finance books, but it’s obviously longer than one page. There is, however, a single page in it that I believe will help you understand why the book was written and how it could benefit you. On page 11, toward the end of the book’s introduction, Richards shares with us his family’s first attempt at an actual one-page financial plan.

Putting Money In Its Place

Originally in ForbesWhat we believe about money will impact how we use it. Unfortunately, a central belief most of us hold about money is fundamentally flawed. We believe that money is either good or bad when, in reality, it is neither.

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A belief that money is bad certainly is the minority mindset. But it may be a more dangerous conviction than its inverse, if only because it appears virtuous. After all, how could using less water, less square footage, less medication, less natural resources — less money — be a bad thing? Perhaps because there’s a deceptively short distance between being pro less-[fill-in-the-blank] and becoming anti-[fill-in-the-blank]. And if we’re anti-money, we may also become anti-people-who-have-money, including ourselves if such a circumstance arose.

A friend of mine has a huge heart for people with less — I mean, really less. So much so that he dedicated his life and work to serving them. He regularly goes to the world’s most deprived places, using his powerful combo of empathy, education and experience to rally the necessary aid. Once, when he received a sudden sum of money, I asked him if he was capable of committing financial suicide — by which I meant divesting himself of all the extra decimal places in his bank account — simply because it wouldn’t feel right for him to have such a possession as one so wholly dedicated to the world’s underserved communities. He acknowledged it was possible.

The far more common belief is that money is inherently good. Although this belief appears innocuous at first blush, it’s important to consider its logical conclusion. If money is good, then more money is better. If so, we might be inclined to accept a common lament as true: “If I only had more money, I’d have a better life.” Inevitably, money becomes personified, and thus becomes an unconquerable competitor pitted against the actual people in our lives. In this reality, our friends and family simply can’t compete with money. People let us down, while money only promises to make our hopes and dreams come true.

We need to put money in its place. Specifically:

Money is a neutral tool that can be used for good or ill.

That’s it.

When we believe that money is bad, we typically handle it poorly and strain our relationships. When we believe that it’s good, we tend to put money in competition with people and strain our relationships.

You Can’t ‘Robo’ True Financial Advice

Originally published CNBCThe investing world is a better place, thanks to the advent of well-funded online investment advisory services.

Collectively dubbed “robo-advisors,” companies such as Betterment, Personal Capital and Wealthfront have managed in just a few years to do what the financial industry has failed to accomplish during a couple of centuries: provide quality investment guidance at a cost accessible to most demographics. It is a long time coming.

Adam Nash, Wealthfront’s chief executive, however, isn’t fond of the robo-advisor label.

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The Disciplined Investor’s Worst Enemy: Tracking Error

Originally in ForbesLast year was a tough one for disciplined investors. Disciplined investors know that diversification is a key element of successful portfolio management. But investors who stayed the course and remained diversified were punished for it in 2014, at least in the short term.

Disciplined investors will continue to be taunted over the coming weeks and months by headlines touting the success of “the market” in 2014. “Which market is that?” many of them will ask.

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Well, “the market” we hear about most often is the Dow Jones Industrial Average, which represents only 30 of the largest U.S. companies trading on the New York Stock Exchange. A slightly broader barometer of “the market” is the S&P 500 index, a benchmark tracking 500 of the largest U.S. stocks. In this case, “the market” could more accurately be translated as “the U.S. large-cap stock market.”

2014 Asset Quilt

What is “the market”?  It’s actually a host of different markets in reality.  Pundits may entertain us with their prognostications, but one glance at this asset class quilt makes it abundantly clear that attempts to pick the next winner are in vain–or worse yet, counterproductive.