Helpful Perspective From A Rockstar Non-Profit And A Tailwind

Do you ever get so caught up in your own head, in your own stuff, that you lose perspective? I can’t imagine a time that would be more inclined to lead us to insular thinking, self-pity, conspiracy theorizing, and perspective losing than this season we’re trudging through.

So in this week’s Financial LIFE Planning weekly installment, you’ll get some perspective that I hope will give you peace and help you make wise financial, and other, decisions:

  • An exclusive FLiP video chat with Michael O’Neal, the Executive Director of global non-profit, ONEWORLD Health
  • A confounding Weekly Market Update with a side of cheese
  • A reminder about our capacity to overestimate our own capabilities

Oh, and Happy Mothers Day, to mine and all of you moms!


Financial Planning

How to Get More Than You Give

Have you ever noticed that when you give to someone whose needs are greater than yours, you actually feel like you have more? Whether it’s a friend in need of a pick-me-up, an investment of your time at a soup kitchen, or a charitable contribution, this change in perspective is one of three major benefits of giving.

The other two? Well, in addition to our perspective being changed, we experience a biological phenomenon, an endorphin rush. Apparently, we’re biologically wired to feel good when we give. Cool, right? And pragmatically, depending on how (or if) you file your tax return, you may also get a rebate on a portion of your financial gifts…check with your CPA.

This week, I recorded a video chat I had with the Executive Director of ONEWORLD Health, Michael O’Neal, specifically for you! We discussed their unique approach to sustainable development work that has enabled them to survive the COVID-19 crisis–and the success they’ve had cultivating relationships with individuals, families, businesses, and even rock bands, like NEEDTOBREATHE, who alone has raised over $2.3 million for the work their doing.

He also explains why we always get more than we give. Click below to watch the nine-minute excerpt, or top off your coffee and click HERE for the full 23-minute interview.

And yes, if you’re jonesing to put that give-more-than-you-get business to the test right now, it’s easy–click HERE and hit the Donate button. And if you choose to give $50 or more, please let me know, because I’d like to send you a personal thank you.


Weekly Market Update:

After two marginally down weeks, the market had another week in the green, almost confoundingly so:

  • +2.56% DJIA (30 big U.S. companies)
  • +3.50% S&P (500 big U.S. companies)
  • +2.71% EFA (~900 international companies)

The biggest question for most people is, “How!? How is the market going up when the economic news is historically bad?” It’s true: Unemployment this week hit 14.7%–the worst since the Great Depression.

Although clearly indeed of a beard trim–sorry, Mom!–I joined Jill Wagner on Cheddar (an online TV channel) to discuss this seemingly odd phenomenon, and to offer some suggestions for the unemployed, under-employed, self-employed, and gainfully-employed in these challenging times:


Life Planning

Is the wind at your back?

I’m not a “cyclist,” but I do love to ride my bike. Last week, I took a new ride, recommended by my good friend–who is a cyclist–that stretched me a bit, and gave me another healthy dose of perspective.

I love to have a destination, so I set my course for the Bulls Island Ferry, a beautiful spot in Awendaw, SC. The total ride was about 20 miles, and on the way there, I felt like an Olympian, averaging about 18 mph. (“Maybe I can call myself a cyclist,” I was beginning to think.

With head held high, I took in the beautiful view, nodded proudly to the couple that I passed on the last mile, and headed homeward. Only then did I realize that I’d had a meaningful tailwind that I’d now be fighting the entire way home. The wind had been at my back.

And as I was thinking about a contingency plan on mile 15–suffering the embarassment of calling my wife and asking her to pick me up in the middle of nowhere, a length to which I thank the Lord I didn’t (quite) have to go–a question hit me like an easterly wind pounding route 17:

How much of whatever I’ve done well in life was actually just thanks to a solid tailwind? Being born into a great family? In the right zip code? Being on the right team? Having selfless friends? Working with amazing people?

How about you? Is it possible that your successes have been aided by a tailwind? If so, who is deserving of thanks? (In addition to your mother, of course!)

How about now? If you feel like a failure at the moment, is it possible you’re just facing the greatest economic headwind of a generation? Who can you ask for help?

Or if you’re fortunate enough to be cranking through this crisis at top speed, who can you help?

And if you think of the people who’ve been your tailwind, I hope you take a moment–why not now?–to thank them.

The spent lungs and sore butt were worth the perspective…and so was the view:

I hope you have a great Mother’s Day and find a healthy tailwind this week!

Tim

How should retirees deal with crazy markets when they don’t have time to “stay the course”?

Investing is a young person’s game, am I right? I mean, I can understand the argument for ignoring short-term market dives when it’ll be decades before you need to actually touch the money. But what about retirees who need income today? Should retirees and near-retirees be cashing out of stocks on fears that a worldwide pandemic will continue to throttle markets?

I recently discussed this concept on CNBC. Click the image to watch the video.

First, it’s important to address this question on an emotional level before attempting to respond rationally, because it’s not cold, calculating rationale that leads the charge in times of high market volatility, especially of the downward variety. (Indeed, as my friend Jeff Levine said, “Nobody ever seems to mind volatility when it’s up.”) Furthermore, when we are feeling and responding through the fast-acting, impulsive processor in our brain, thoughtful logic isn’t particularly comforting.

Retirees, in particular, may feel downright scared, and perhaps their fear is justified, because:

  1. They feel disempowered because they’re no longer earning a paycheck and are now reliant entirely on sources of income beyond their control. 
  2. They don’t have as much time as an investor in his or her 20s, 30s or 40s to recoup losses. 
  3. The math does change for those who are in the distribution phase of their life. Losses can indeed be compounded when you’re taking income out of a portfolio, rather than opportunistically buying through regular contributions.

Therefore, whether you’re a financial advisor counseling someone through turbulent markets or a white-knuckled investor eyeing the eject button, please know this: Every emotion is valid and worthy of acknowledgement. The best financial advisors will take it one step further and explore the emotions in play, even enlisting them in support of the best long-term investment strategy.

Once we’ve addressed this valid concern on an emotional level, it’s time to look at it from a logical perspective, and indeed, for most retirees, it’s important to maintain a healthy allocation to stock exposure in order to ensure that your lifestyle keeps up with inflation. In determining how much risk any investor should take, one’s “time horizon”—the ability to take risk—is a material consideration. A retiree in her late 60s has a shorter time horizon than a new investor in his early 20s, but, however limited, the retiree’s time horizon still isn’t zero.

Retirees need to satisfy income needs today, but they also need to address income needs in the future. Therefore, while it’s a slight oversimplification of a total return portfolio strategy, in times of extreme market volatility, I would invite retirees to view the meaningful portion of conservative fixed income in their portfolio as their income engine in the short-term while their portfolio’s stock exposure is designed to generate income years from now.

(Of course, this presumes that one’s fixed income portfolio is actually conservative, a stabilizing force in your portfolio. Corporate, longer-term, and especially high-yield bonds tend to have equity-like characteristics in down markets; so dare to be boring with your fixed income allocation.)

The optimal percentage of equities in a retirement portfolio will be driven by the retiree’s need to take risk. If you don’t need to take the risk, who am I (or any other financial person with a propensity for stock market cheerleading) to convince you otherwise? Yes, you might need a boost from market returns to outpace inflation. And yes, even if you’d struggle to spend all your money in this lifetime if you kept it in a Mason jar, you might consider investing it for the next generation. But there’s no moral imperative to endure market volatility if you don’t need or want the long-term benefits we expect to receive.

And that’s especially because the most important factor in determining how much equity risk you take in your portfolio is your internal willingness to assume risk. This is the gut-check test, and if you’re at risk of bailing out at the bottom—the worst possible time to sell—you must limit your exposure to stocks. Sticking with a conservative portfolio will earn you more in the long run than fleeing a more aggressive one.

Of course, you can only “stay the course” if you have one. You can only stick with the strategy that exists. Typically, emotions are heightened among those who don’t fully understand or can’t fully articulate their strategy and especially among those who don’t have one. 

Too many investors own a collection of securities—or even a collection of someone else’s strategies—that have built up over a lifetime, rather than a well-designed, purposely built, customized portfolio. Those investors should be concerned, and they should use this market hysteria du jour as the catalyst for a substantive portfolio review.

If you’re in the minority, however, who do have an understandable, goals-based strategy—who have considered their ability, willingness and need to take risk—and who have proportionately set their exposure to stocks, then by all means, rest easy and rebalance. Know that however ugly this particular market event gets, it likely will not amount to a blip on the radar when looking at your lifetime of investing. Acting rashly in these situations is more likely to do harm than good.

The Key To Good Habits: The Perfect Smoothie?

In Charles Duhigg’s eye-opening book, The Power of Habit, we learn that we are, whether we like it or not, creatures of habit. For better and for worse.

In order to help us understand how habits work, how to identify them, and how to create good ones, Duhigg introduces us to the “Habit Loop,” a cycle that begins with an (often unknown) behavioral Cue that triggers a Routine resulting in a desired Reward.

Physical exercise is something that’s important to many people, myself included, so using Duhigg’s concepts, I’ve created a reward for this desired behavior that I submit to you as nothing short of the World’s Best Protein Fruit and Vegetable Smoothie.

The Only Market Volatility Prediction You Can Count On

“As you can see, we’re experiencing rough air at the moment. But as a reminder, we can’t predict rough air,” said the Delta airline pilot ferrying me from St. Louis to Charleston (via Atlanta—always Atlanta), “so please keep your seatbelts on whenever you are seated.”

Thank you, sir, for giving me precisely the hint of inspiration I needed to frame this week’s note of encouragement while in the midst of one of the crazier market stretches we’ve seen in a couple of decades!

DANIEL ROLAND/AFP/Getty Images

Of course, statistically speaking, this bout of stock market extremism is more the norm than the exception.  No, it’s not particularly normal to have thousand-point-up or -down days for the Dow Jones Industrial Index.  But volatility—market ups and downs—is, indeed, more typical than placid markets.

One of the very few market predictions I (or anybody, for that matter) can responsibly make:

The market is more likely to be volatile than not.

How To Avoid Being Victimized By Financial Deception

“I’m calling it — this is an Apple commercial,” said my 14-year-old son, about halfway into the visually stunning emotional appeal for educational experimentation that appeared on our TV while we were otherwise dedicating ourselves to one of the best college football games of the season.

Yes, it’s about that time again, when companies are rolling out new commercial campaigns in conjunction with some of the year’s most viewed sporting events–beginning with the college football playoff and culminating, of course, with the only spectator sporting event where no one wants to cede their seat during the commercials, the Super Bowl.

Shutterstock

“I think you’re right,” I said to my son (especially gripped because the commercial featured a young man sharing a defining moment with his beloved parents via his smartphone), just as the musical crescendo sent a chill down my spine.

But then came the verdict.

It wasn’t Apple, after all, even though the tech company is known for its artistic commercial flair in imploring viewers to engage technology in the most relational ways. It was a mainstay financial company inviting us to bring the benefit of our long-term financial planning for the future into the present.

Brilliant.

“Wait a minute, though,” I said to my boys, “These guys are notorious for hard-selling over-priced insurance policies for big commissions!”

“Whatever they are, it’s a great commercial,” my 12-year-old son concluded before the Oklahoma Sooners and the Georgia Bulldogs again filled the screen.

He was absolutely right. But as I reflected on the power of this particular message and medium, I’ve had this lingering sense that there’s a real danger present.

TODAY Show Appearance: Talking Debt, Budgeting, Market Highs And Maintaining Motivation

What better way to start off the New Year than in New York with the TODAY Show?  Despite the 18 below windchill whipping through the city streets, I had a blast with Sheinelle Jones and Craig Melvin discussing the most damaging forms of debt, the top two budgeting apps, the best kinds of checking accounts, how you should respond to market highs–and lows–and how best to stay motivated to turn those financial resolutions into long-term habits!

Click HERE or on the box above to watch the segment.

Entrepreneur Shares ‘Life-Saving’ Career Change

This was given to me, because that was going to kill me,” entrepreneur Lee Janik told me.

“That” was the job of owning and running a construction company he started in Ohio in the mid-2000s.

“This” was the sacred experience of fly fishing, and ultimately building a multinational craft rod-making company.

SEBASTIEN BOZON/AFP/GettyImages)

“It’s like going to church.” That’s how Janik describes fly fishing, his passion, which nursed him through the Great Recession as his commercial real estate development and construction company hung on for dear life.  

The company survived, and ultimately thrived, but his therapeutic hobby grew into something more. At the moment, “this” has evolved into Clutch Fly Rods, the company Janik founded selling high-end fly rods that is fast becoming a disruptor in its space.

The Elephant In The Room: How The Financial Industry’s Shunning Of Emotions Fails Its Clients

I don’t think professor Richard Thaler is going to return my calls anymore. Sure, he was gracious enough to give me an interview after his most recent book, Misbehaving, a surprisingly readable history of the field of behavioral economics, was published. But now that he’s won a Nobel Prize, something tells me I’m not on the list for the celebration party.  

(Although, if that party hasn’t happened yet, professor, I humbly accept your invitation!)

But I’m still celebrating anyway, because Thaler is a hero of mine and I believe that the realm of behavioral economics–and behavioral science more broadly–can and should reframe the way we look at our interaction with money, personally and institutionally, as well as the business of financial advice.

Behavioral Economics In Action

The Elephant and the Rider

Of course, even if you’re meeting Thaler for the first time, his work likely has already played a role in your life in one or more of the following ways:

  • Historically, your 401(k) (or equivalent) retirement savings plan has been “opt-in,” meaning you proactively had to make the choice–among many others–to do what we all know is a good idea (save for the future). But our collective penchant for undervaluing that which we can’t enjoy for many years to come led most of us to default to inaction. Thanks largely to Thaler and Cass Sunstein’s observations in the book Nudge, more and more companies are moving to an “opt-out” election, automatically enrolling new employees in the plan with a modest annual contribution.  
  • Better yet, many auto-election clauses gradually increase an employee’s savings election annually. Because most receive some form of cost-of-living pay increase in concert with the auto-election bump, more people are saving more money without even feeling it!
  • Additional enhancements, like a Qualified Default Investment Alternative (QDIA), help ensure that these “invisible” contributions are automatically invested in an intelligently balanced portfolio or fund instead of the historical default, cash, which ensures a negative real rate return.  
  • Some credit card awards now automatically deposit your “points” in an investment account while some apps, like acorns.com, “round up” your electronic purchases and throw the loose virtual change in a surprisingly sophisticated piggy bank.

No, you’re not likely to unknowingly pave your way to financial independence, but thanks to the work of professor Thaler and others, many are getting a great head start without making a single decision.

What is most shocking to me, however, is the lack of application–or the downright misapplication–of behavioral economics in the financial services industry.  

‘Someday Came’: How Our Vision Of The Future Shapes Our Saving In The Present

While on vacation recently in the Abaco Islands, on the outer rim of the Bahamas, I found myself on an important mission: taking the golf cart to the local market to restock our dwindling supply of the necessary ingredients for piña coladas.

I was stopped in my tracks en route by a welcome sign announcing a new resident’s beachside home. It read: “Someday Came.”

The obvious implication is that these folks decided to act on their “Yeah, I’m gonna do that someday” daydreams.

But it raises many questions, right?

Who are these people? What’s their story, financial and otherwise? Did they hammer this sign into the sand after scrimping and saving, finally realizing their retirement dream following a lifetime of toil? Or are they the professionally mobile couple with young kids you see on HGTV’s “Caribbean Life,” who decided they’d just had enough of the rat race?

I’m glad I don’t have the answers, because the big question for the rest of us is worthy of consideration:

How do we define our “someday”? How do you define yours?

The Equifax Hack Shows Only You Can Protect Your Identity

What happens when one of the three primary entities designed to safeguard our financial identity to the outside world gets hacked?  

We don’t know yet, but it’s quite possible that the answers will be illuminated in retrospect because Equifax waited more than a month to announce the breach.

What can you do at this time to ensure that you are shielded from the worst possible outcomes of this–or the inevitable next–mass identity theft?

Click on the graphic above to watch Tim Maurer on PBS’ Nightly Business Report discussing Equifax hack

First, specifically regarding the Equifax situation, you may consider taking two steps they have recommended (all while keeping in mind that this is coming from the entity that let the identity of as many as 143 million Americans slip through their fingers):

1) You can go directly to the dedicated Equifax website to determine if you were likely hacked, like I did. Hit the “Potential Impact” tab and then the “Check Potential Impact” button:

You’ll be asked to put in your last name and the last six digits of your Social Security number.  Then, you’ll get the verdict on whether or not they think your information may have been hacked. When I completed this process for the four members of my household, three of them were (apparently) spared while I got the undesirable response that my “personal information may have been impacted by this incident.” Awesome.  

Many, however, have found this online device lacks reliability. In at least once instance, the name of a colleague’s dog and a fabricated Social Security number returned positive results. [Insert contemplative, curious emoji.]

2) Regardless of whether your information was hacked, Equifax then gives you the opportunity to sign up for their TrustedID Premier credit monitoring system–free for a year to all Americans. There initially was some controversy over whether agreeing to receive the freebie would result in waiving your right to be part of a prospective class action lawsuit against Equifax in the future. They’ve since clarified that it will not.

But signing up for their credit monitoring service also seems convoluted, or perhaps my enrollment message appears clearer to you:

If your journey to secure your identity continues beyond what the leaky Equifax has to offer–and it probably should–please consider these additional steps:

3) Monitor your credit. You can pay someone to do this, but I’ve yet to be convinced that it’s worth it, especially because you can get most of the promised benefits for free.  

You can obtain a free copy of your credit report from all three credit reporting agencies at annualcreditreport.com. Order all three at once for the most comprehensive review or spread them out throughout the course of the year. But to be fair, reading a credit report can be like drinking from a firehose.

Therefore, you may consider a growing number of free online resources, like CreditKarma.com or Mint.com, that aggregate credit information in a more understandable and practical form.  Personally, I’ve used CreditKarma for years and found it to be very helpful as part of the following simple process:

  • Regularly glance at the homepage, which displays my current credit score from two of the three credit bureaus. Only if there’s been any significant movement in this score will I then…
  • Review any of the warnings that might explain the volatility in my score. If so, I might…
  • Review reports in full and take any necessary action.

This process has more than once served to alert me to activity that required follow-up.  

4) You may consider taking the additional step of “freezing” your credit. It’s a process that looks different in each state, and I’d only recommended it if you don’t intend to use your credit in the near future. Otherwise, you’ll have to “thaw” your freeze to give prospective creditors the necessary access to your info.  

One step, however, that I can’t see any downside to taking is freezing any existing credit reporting for your minor children. (Um, why do they even have credit reports, major credit bureaus?) If you decide to go this route, Clark Howard’s credit freezing guide is helpful.

5) Only use credit cards–not debit cards–for purchases. Despite Dave Ramsey’s objections, this way, it won’t be YOUR money that is stolen if you’re hacked. It’ll be the credit card company’s job to reclaim their funds.  

This is advice that I’ve received first-hand from Frank Abagnale, the fraudster turned FBI consultant made famous by Leonardo DiCaprio in the movie Catch Me If You Can.  

We can trust him now. I’m pretty sure.

6) Lastly, change your passwords to online financial accounts. If you were one of the 143 million people affected by the Equifax hack, you may wonder if hackers could gain immediate access to your bank and securities accounts. But you still hold some very important cards that they can’t see–namely, your password and any PIN numbers attached to online financial accounts.  

Do you really want to go “off the grid”?

It’s probably a good time to update and strengthen those.

But here’s the scariest news that has been highlighted by this new mass hack:  

Unfortunately, we now live in a world where it’s not a question of if, but when, we will deal with having all or part of our identity stolen.

Sure, you could try to go “off the grid,” like Psycho Sam, the bush-man. But for most of us, the benefits to be derived by the online economy simply outweigh the risks. That means personal credit monitoring is a habit we must build into our lives.