My son gave me a present. To be fair, I don’t think it was until after he realized the gift was monetarily worthless, but I appreciated it nonetheless. It’s a big hunk of the mineral pyrite, also known as fool’s gold. My son’s gift has value to me far beyond its function as an excellent paperweight. And, ironically, its worth to me is continually rising. It’s become a constant reminder to orient my life away from that which only appears valuable and towards that which truly is.
We all have our own versions of fool’s gold. It’s generally the stuff that, while largely worthless, receives an undue amount of our time, attention and investment. What’s yours?
Here are three ways to spot it:
1) Fool’s gold consumes time you’ve dedicated to other things. Not more than one paragraph into writing this post (on this topic, no less!) I found myself entering this Google search—“what is the best banjo ukulele”—and then navigating to this page, then this one.
As if PIMCO needed any more bad press, The Wall Street Journal reported this week that the Securities and Exchange Commission is investigating whether the bond giant “artificially boosted the returns of a popular fund aimed at small investors.” While we should all be attentive to the results of this probe—because I’d bet my lunch money that its implications will be felt beyond just PIMCO—there is an even deeper issue to consider. And this issue has a more direct impact on our individual portfolios and money management choices. The real danger in overstating returns, and indeed the root of most financial missteps, is self-deception.
“How’s your portfolio?”
Who among us wants to feel like a failure? We’ll generally avoid experiencing this sensation at all costs. So, absent conspicuous success, we permit ourselves to believe that we’ve at least not failed, frequently through self-deception.
“People have always been captivated by quests,” writes author Chris Guillebeau in his brand new book, The Happiness of Pursuit. Chris, for one, is most certainly one of those people. His book celebrates the completion of a personal quest to visit all 193 countries in the world before his 35th birthday.
Are the rest of us captivated by quests as well? Absolutely. But is the whole concept of questing, journeying and generally living life as an adventure something anybody can pursue? Or are we merely relegated to living vicariously through Chis and his band of fellow travelers? After all, the rest of us have obligations, right? Nine-to-five drudgery is a responsibility. To some, it’s even an honor. We’ve got spouses, kids, mortgages, car payments and PTA meetings. We can’t be gallivanting all over creation in search of enlightenment.
Or can we?
Chris has some pretty strong feelings on that—so strong that the stated lesson of the first chapter in his book is: “Adventure is for everyone.”
Perhaps it depends on how we define a quest? Here are Chris’ criteria:
- “A quest has a clear goals and a specific end point.”
- “A quest presents a clear challenge.”
- “A quest requires sacrifice of some kind.”
- “A quest is often driven by a calling or sense of mission.”
- “A quest requires a series of small steps and incremental progress toward the goal.”
By these measures, running a marathon would assuredly be considered a quest for most. How much more, then, is John Wallace’s feat of running 250 of them—in a single year?
Wallace is one of many questers featured in The Happiness of Pursuit, but most of the others’ exploits are far less headline worthy. Chris endeavors to bring the notion of questing closer to home by featuring a largely “ordinary” cast of characters, and in so doing, he succeeds.
Boomer Esiason is busy—I mean, really busy. “Starting next Tuesday, all the way until after the Super Bowl in 2015, I think I’ve got about four days off,” he told me.
Why, then, was he anxious to talk about financial planning and life insurance?
It’s because he has a message for today’s youth: “Protect your future and make sure that whenever adversity strikes, you are prepared for it.” Prepared, among other things, with the appropriate level of life insurance.
But how did one of the National Football League’s great quarterbacks and commentators become an advocate for life insurance and the spokesperson for Life Happens, a nonprofit dedicated to increasing awareness of the importance of planning with life insurance?
As kids head back to school, adults spanning several generations set their sites on getting their financial house back in order. What are the most important financial planning considerations in three major demographics—Millennials, Generation X and Empty Nesters?
Millennials: First things first – Before making any big financial commitments, like buying a house, figure out what you want life to look like.
- Are you in a relationship and looking to “settle down,” or do you highly value freedom and flexibility? If the latter, you shouldn’t be buying a house or committing to a job that is geographically tethered.
- If you’re in your twenties, the primary factor that will influence your financial success is how well you establish yourself in a career. Invest in yourself, and that will likely help you invest more money in the future.
- Save as much as you can in tax-qualified retirement accounts at this phase of life, because once you get settled down and have kids, your expenses will rise dramatically.
- Don’t default to 100% equity portfolios just because you’re young. After getting burned by the market crash of 2008, many Millennials got scared away and didn’t benefit from the subsequent market rise. Your portfolio should likely be predominantly stocks at this age, but consider some fixed income exposure to keep from losing your shirt (and abandoning your strategy) in a downturn.
To really help people, financial planners have to delve into the the feelings and emotions that drive their clients’ financial decisions. One planner explains why that’s so hard.
While most of us financial advisers want to do the best for our clients, we often struggle at the task.
The main problem, as I recently wrote: We don’t know our clients well enough. We may say that a client’s values and goals are important, but most of us don’t adequately explore these more personal (a.k.a. “touchy-feely”) parts of a client’s life.
Why is this?
One reason we avoid deeper discovery with clients: No matter how we’re paid—whether by commissions or fees—most of us don’t get compensated until the financial planning process has neared its end.
Last month I attended a presentation that explored, in depth, the notable differences and financial tendencies of several generations, from the silent generation through the millennials.
The presentation described certain representative traits perceived as common among each generation and what financial advisors should consider when communicating with members of them as prospects and clients.
When discussion of the younger generations came up, I noticed advisors around the room rolling their eyes and scratching their heads. The expert at the front of the room was providing well-researched data to help us understand what is important—and less so—to these generations and how we might consider breaking through to them.
But, as the attention of this group of well-heeled advisors descended into a collective yawn, the presenter scurried to wrap up before answering the most important questions:
- Why exactly should financial advisors dedicate themselves to working with younger clients?
- Why should advisors apply valuable time and money to crafting services and messaging for a demographic niche notorious for inspiring descriptors such as “entitled,” “ungrateful” and “distrustful”?
The U.S. Department of Agriculture (USDA) recently released its annual “Cost of Raising a Child” report. The news from it is really no news at all to us parents—kids are stinking expensive and growing even more so. However, if you read between the lines, there are three extremely important points that don’t show up in the executive summary:
1) Parents still have a choice. The USDA estimates that households with less than $61,530 in income will spend a total of $176,550 per child. Meanwhile, “middle-income parents” making between $61,530 and $106,540 each year can anticipate spending $245,340 per kid. Those blessed with household income over $106,540 should expect to spend $407,820.
Here’s how I read these numbers: It likely costs approximately $175,000 to care for a child’s needs in today’s dollars. Beyond that, it’s our choice as parents if and how we spend additional money on our progeny. When your household income jumps from $106,000 to $107,000, the USDA isn’t holding a gun to your head and demanding that you spend an additional $162,480 per child.
It’s completely up to you, and you may choose to spend more or less than some of the USDA estimates. For example, you may choose (wisely) to spend more on one child than another for various, justifiable reasons, including each individual child’s own gifts and weaknesses. If you choose to put even one child through private school, from kindergarten through a graduate degree, you could easily spend a million bucks just for education—and college isn’t even included in the USDA’s numbers.
There is no shortage of receptacles clamoring for your money each day. No matter how much money you have or make, it could never keep up with all the seemingly urgent invitations to part with it.
Separating true financial priorities from flash impulses is an increasing challenge, even when you’re trying to do the right thing with your moola — like saving for the future, insuring against catastrophic risks and otherwise improving your financial standing. And while every individual and household is in some way unique, the following list of financial priorities for your next available dollar is a reliable guide for most.
Once you’ve spent the money necessary to cover your fixed and variable living expenses (and yes, I realize that’s no easy task for many) consider spending your additional dollars in this order:
A study by the Urban Institute uncovered a shocking statistic, that 35% of Americans have some consumer debt in collections. I discussed this with Tyler Mathisen on PBS’s Nightly Business Report, produced by CNBC.