Take More Risk In Life And Less In Investing

“I just really wish I’d taken more risk in my investment portfolio,” said no one–ever–on their deathbed.

That may seem like an odd observation, unless you consider the fact that I had the privilege of spending a couple days recently with life planning luminary George Kinder. Among other benefits, I was able to reacquaint myself with his famous three questions, elegantly designed to progressively point us toward the stuff of life that is the most important–to us.

The final question invites us to explore what benchmark life experiences we would leave unaccomplished if we only had one day left on this Earth. And as you may suspect, even in a room filled with financial planners, achieving a more aggressive portfolio posture was, perhaps, the farthest from anyone’s mind.

Meanwhile, most of the items that people did list represented experiences (not things) that, individually, were outside of their to-date unarticulated–but now evident–comfort zones.

Participants almost universally wished they’d have taken more risks in life–personally, educationally, relationally, experientially, professionally and vocationally.  

Similarly, those most meaningful experiences they had enjoyed thus far in life were the ones that pushed the boundaries of their comfort zones, expanding their personal risk tolerance.

But what about financial risk tolerance?

Adaptation Devaluation: Why A U2 Concert Is Better Than A New Couch

My favorite discovery in the field of behavioral economics confirms what we already knew deep down, even if it contradicts “common sense”–that experiences are more valuable than stuff. I recently put this finding to the test:

Concert of a Lifetime

“You’re crazy.”

Those were my wife’s words when I called her from the road, rushing to discuss what I termed “the concert of a lifetime.”

I’d just learned that living legends U2 were touring in support of the 30th anniversary of their most celebrated album, “The Joshua Tree.”  

(Photo by Andrew Chin/Getty Images)

The greatest live band of a generation playing the soundtrack of my youth from start to finish.

Andrea was on board with going to the show–she’s a big fan, too. But what invited her claim of insanity was my insistence that we take the whole family to Seattle to see the show. We live in Charleston. South Carolina.

The 10 Email Commandments You’re Breaking Every Day

Do you live in fear of your email inbox? It is such an effective tool for information exchange that it can render us completely ineffective in our attempts to control it.

I fear that I’m going to miss the proverbial wheat because of all the darn chaff overstuffing my inbox. You, too?

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Well, apparently we’re in good company. As a student of behavioral economics and finance, my ears always perk up when behavioral economist Dan Ariely has something to say. He struggled so much with  managing the daily email harvest that he decided to create two apps, one that helps people send him better emails and another that helps him prioritize the emails he receives.

This inspired some colleagues and me to ask: “What are the ways that we might be contributing to the chaff in the inboxes of our business associates and friends?”

What are the often unspoken rules of good email etiquette? Here’s what we came up with…

The 10 Commandments of Business Email:

1. Thou shalt not gratuitously “cc.”

You’re on it–they know.  

PARENTS: Don’t Sacrifice Yourselves On The Altar Of Your Children’s Education

Parents have sacrificed their financial futures on the altar of their children’s education. Fueled by easy federal money and self-interested colleges, the result is a student loan crisis that appears already to be eclipsing the catastrophic proportions of mortgage indebtedness leading up to the financial collapse of 2008.

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Please allow me to disclaim a few things:  

  • I’m not anti-education. In fact, I valued my college education so much that I went back to teach at my alma mater, Towson University, for seven years.
  • I believe that a college education is a) inherently valuable, b) an enhancer of career prospects and c) fertile ground for unforgettable life experiences beyond the classroom.  
  • I’m a parent. I’ve encouraged my two sons, 13 and 11, to strive for a college education, and I’ve also offered to share in the financial burden.
  • I’m not a prognosticator. Therefore, I’m not predicting an imminent crisis akin to the Great Recession, led by student loan defaults. Crystal balls don’t work, and anyone who claims to have one is selling something.

I’m also not a conspiracy theorist, but the facts, according to a new Wall Street Journal article, are indisputable:

The Antidote for Stock Market Hysteria

Just for fun, Google the words “market pullback.” There are over 2.2 million results–most of them market predictions–and the first page of results is dominated by calls for an imminent market reversal that the simple desk calendar has already proven false. 

However, despite their worthlessness, market predictions remain as predictable as market opens and closes. (And I predict no end in sight.)

But why?

First, there’s a clear profit motive. Apparent urgency leads to activity, and activity is still how most of the financial services industry makes its money.  

“Bullish predictions encourage investors to pour fresh money into the markets, helping asset management companies to enjoy rising profits,” the New York Times reported, noting that the Wall Street forecaster’s consensus since 2000 has averaged a 9.5% increase each year. They accidentally got it (almost) right in 2016, but in 2008, the consensus prognostication missed the mark by 49 percentage points (an outcome that makes your local weatherman seem like a harbinger of accuracy)!  

But not everyone’s positive either. My colleague and the co-author of the new book “Your Complete Guide To Factor-Based Investing,” Larry Swedroe, analyzed Marc Faber’s perpetually cataclysmic proclamations and rendered the good doctor “without a clue.”  

Top 5 Books To Put The ‘Personal’ Into Your Finances This New Year

Originally in ForbesBecause personal finance is more personal than it is finance, just about every step we take in our personal development aids us in financial planning, and vice versa.

top-5It 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.

American Pension Crisis: How We Got Here

Originally in ForbesMy 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.

Why I’m Hoping The Trump Administration Doesn’t Kill The DOL Fiduciary Rule

Originally in ForbesAdvisors 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’.

Fiduciaries are required to put their clients' interests ahead of their own.

Fiduciaries are required to put their clients’ interests ahead of their own.

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.”

What The Stock Market Wants This Election, And What You Should Do In Your Portfolio

Originally in ForbesWe’ll know soon enough who America chooses as its next president, but the market has already voted.

Who does the stock market “want” to win?

Hillary Clinton. This isn’t a partisan statement, but simply a statement of fact. election-2016There 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.

You Won’t Get Fooled Again: Understanding the Availability Heuristic in Investing

Originally in ForbesYou’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?