Financial Advisors: Differentiate Yourself By Being Yourself

The most freeing day of my career was when I sold my golf clubs.

Different

Although the transformation had been under way for several years, it was a moment of symbolic importance. It signaled an official decision to permit myself to be something other than what I had come to believe the financial industry wanted me to be. I was officially granting myself permission to be myself.

Conformity

I apologize in advance for stereotyping, but the sales managers I had worked for had personified the industry for me. Not fond of nuance or implication, they simply had expressed that I was to be, among other things, a golfer. So I bought a set of new clubs outfitted with a nice bag, and I hired an instructor to help me master the gentleman’s game.

After several lessons, my laidback instructor told me he’d never seen anyone grip the club quite so hard. We discovered that I had complemented my less-than-elite athleticism with heavy doses of intensity and hustle to remain competitive in sports while growing up. Unfortunately, as it turned out, these traits were counterproductive to success in golf.

Instead of investing thousands of dollars in psychotherapy to try and loosen my grip on a golf club, I sold my clubs and bought a used road bicycle. I grew to love the sport, which rewarded my overcompensation of will and desire.

But I wasn’t just dumping golf at that moment. I was dumping it all—the notion that I should only wear dark suits, plain white (or light blue on Friday) shirts, power ties, hair that is neither too long nor short and a clean shaven face. Eureka—I could even wear a pair of jeans to the grocery store now!

Differentiation

Paradoxically, as long as I lived inside of the industry’s box, I was taught to differentiate myself professionally—to become “the guy” for orthopedists or cosmetic dentists or corporate attorneys. Everything I did in life, work and play was supposed to send a message that would presumably attract a specific niche of people who are known for making especially profitable financial advisory clients.

Of course, there is nothing wrong with golfing, differentiating yourself or serving a niche. In fact, each of these pursuits can be beneficial for you and your clients when practiced in earnest. What is wrong—or at least unhealthy and more than a touch manipulative—is becoming someone you are not for the benefit of purposefully differentiating or conforming.

What if the Holy Grail of finding your niche and setting yourself apart from the crowd was found simply in permitting yourself to be yourself?

Being Yourself

If you always wanted to be a Navy fighter pilot but got turned down because you’re too tall or your eyesight was worse than 20/20, you could develop a niche serving military officers. If you aspired to be a surgeon but threw up all over the cadaver on the second day of medical school, you could serve the medical community. And of course, if you’re passionate about golf and enjoy the simplicity of uncomplicated garb, you should be entirely free to live up to the stereotype of the financial advisor.

There’s only one caveat, but it’s a big one: When you give yourself the freedom to be exactly who you are, you might disappoint other people. It’s easier for companies and managers—even parents, spouses and, in some cases, kids—to put you in a predictable construct that may best serve their needs and wants.

What if you want to help social workers navigate the world of personal finance and thereby would likely have to take a pay cut? What if it means you’d be working with clients less and drawing more? What if becoming fully you means moving to Latin America to manage a micro-finance operation and teach English? What if it means educating advisors more than investors?  What if it means designing a practice that conforms to your family instead of the reverse?

You might have to change ZIP codes, companies or professions altogether.

Unfortunately, being who you are—especially in the financial industry—may not be the easiest thing to do, but choosing to be yourself is simple because it’s natural, and incredibly liberating.

If you enjoyed this post, please let me know via Twitter @TimMaurer.

 

Study Reveals Investing Is Hazardous To Your Health

Investing Hazard-01I don’t need to inform you that investing is dangerous business.  You already know in your gut what Joseph Engelberg and Christopher Parsons at U.C. San Diego found in their new study, that there is a noticeable correlation between market gyrations and our mental and physical health.

But when do you think the financial industry will get the point?

Shortly after I became a financial advisor, I was given a book to commit to memory.  It told me what my role in life would be: To make a very good living helping approximately 250 families stay in the stock market.

The text insisted that regardless of my client’s age or risk temperament, it would be in their best interest to be—and stay—in stocks, exclusively and forevermore.  I was the doctor; they were the patients.  I was the ark-builder; they were the—you get the point.

The book might even be right.

But…

The Behavior Gap

My friend and New York Times contributor, Carl Richards, has been drawing a particular picture for years.  He’s struck by the research acknowledging the noticeable difference between investment rates of return and what investors actually make in the markets.  (Investors make materially less.)

Investors, it appears, allow emotions to drive their investing decisions.  A desire to make more money causes them to choose aggressive portfolios when times are good, but a gripping fear leads them to abandon the cause in down markets, missing the next upward cycle.

Investors buy high and sell low.

Well-meaning advisors, then, including the author of the book I referenced, have claimed their collective calling to be the buffer between their clients’ money and their emotions.  Unfortunately, it’s not working.

Maybe it’s because the intangible elements of life are so tightly woven into the tangible that we can’t optimally segregate them.

Maybe it’s because we’re not actually supposed to forcibly detach our emotions from our rational thought.

Maybe it’s because financial advisors and investing gurus should focus less on blowing the doors off the benchmark du jour and more on generating solid long-term gains from portfolios designed to be lived with.

Livable portfolios.

Portfolios designed to help clients stay in the game.

Portfolios designed to help clients (and advisors) avoid falling prey to the behavior gap.

Portfolios calibrated with a higher emphasis on capital preservation.

How much less money do you make, anyway, when you dial up a portfolio’s conservatism?

The Same Return With Less Risk

In his book, How to Think, Act, and Invest Like Warren Buffett, index-investing aficionado, Larry Swedroe, writes, “Instead of trying to increase returns without proportionally increasing risk, we can try to achieve the same return while lowering the risk of the portfolio.”

Using indexing data from 1975 to 2011, Swedroe begins with a standard 60/40 model—60% S&P 500 Index and 40% Five-Year Treasury Notes.  It has an annualized rate of return of 10.6% over that stretch and a standard deviation (a measurement of volatility—portfolio ups and downs.) of 10.8%.

Next, Swedroe begins stealing from the S&P 500 slice of the pie to diversify the portfolio with a bias toward small cap, value and international exposure (with a pinch of commodities).  The annualized return is boosted to 12.1% while the standard deviation rises proportionately less, to 11.2%.  (Remember, this is still a 60/40 portfolio with 40% in five-year treasuries.)

But here’s where Swedroe pulls the rabbit out of the hat:  He re-engineers the portfolio, flipping to a 40/60 portfolio, proportionately reducing all of his equity allocations and boosting his T-notes to 60% of the portfolio.  The net result is a portfolio with a 10.9% annualized rate of return—slightly higher than the original 60/40 portfolio—with a drastically lower standard deviation of 7.9%

Same return.  Less Risk.

This, of course, is all hypothetical.  This happened in the past, and for many reasons, it may not happen again.  These illustrations are not a recommended course of action for you or your advisor, but instead a demonstration that it is possible—and worth the effort—to work to this end.

Because we can’t keep hiding from the following logical thread:

1)   Volatile markets increase investor stress (even to the point of physical illness).

2)   Heightened investor stress leads to bad decisions—by both investors and advisors—that reduce investor returns.

3)   Market analysis suggests that portfolios can be engineered to maintain healthy long-term gains, while at the same time dramatically reducing the intensity of market gyrations.

How could we not, then, conclude that more investors would suffer less stress, thereby reducing (hopefully eliminating) their behavior gap, thereby allowing investors to hold on to more of their returns?

Isn’t that the point?

If you enjoyed this post, please let me know on Twitter @TimMaurer, and if you’d like to receive my weekly Forbes installment via email, click HERE.

In 2014, Accomplish More By Doing Less

DO LESS-01Instead of bullying yourself into adopting new practices that are designed to overhaul your life for the better in 2014, consider finding the path to success by simply doing less.

The arctic blast of our fledgling 2014 offers a chilling reminder that the kindred warmth of the holiday season is over.

That’s enough being. It’s time to get back to doing.

“So, how’s it going?”

“Good. Busy. Super busy.”

“Me too. Never been so busy.”

It’s as if there is a self-worth contest sure to be won by the contender most frazzled.

But busyness is no virtue. If anything, it makes us—me included—distracted, forgetful and often late. It diminishes our capacity and saps our creativity.

That’s why we can actually accomplish more by doing less.

But how do we decide which activities absolutely must stay and which might have to go?

Five Minutes to a Leaner You

This quick and simple exercise should give you several top candidates for the chopping block. You need only one piece of paper with a line down the middle (or click HERE for a printable form). On the left side, write LIFE-TAKING, and on the right side, write LIFE-GIVING.

life-taking-life-giving---blank-2Fill the Life-Taking column with the roles (or tasks within roles) that drain you. They’re onerous chores, not labors of love.

On the Life-Giving side, list the opposite—those practices you can pursue for extended periods of time, wondering where the time has gone. You might be tired after a long day of life-giving activities, but you’re not weary.

I should be clear that this exercise is not a license to shed roles to which you’ve pledged yourself—like being a good parent or spouse—or common duties that appear on no one’s life-giving list—like changing diapers or cleaning dishes. Heck, the president of my company, Drew Tignanelli, washes whatever dishes he finds in the company kitchen sink.

But if the majority of your roles and the duties you’ve accepted are life-taking, I encourage you to consider making some difficult decisions in an effort to improve that ratio. That may mean saying yes to something, but it almost certainly means saying no.

Two caveats:

1)   Following through on this exercise may be simple, but it’s not easy. Stakeholders are likely to be disappointed, whether you’re giving up a board seat, book club, church committee or poker night. Your income may also be reduced if you sacrifice an activity that creates income, change jobs or invest in furthering your education.

2)   Many activities are not wholly life-taking or life-giving. For example, last year I decided that maintaining a presence on Facebook took more life than it gave. I certainly derived some benefits from being on Facebook, connecting with friends and family, but the net effect was life-taking. (By the way, I dumped FB six months ago and don’t miss it at all.)

Addition by Subtraction

You can cause a monumental shift for the good in your life and work by simply removing life-taking activities. Your performance in life-giving roles has room to flourish, increasing your productivity and satisfaction. Even more surprising, some activities will move from life-taking to neutral—or even life-giving—after your overall burden is lightened.

Hitting the delete button on even one or two life-taking commitments can make you a better partner or parent, boss or employee, friend or family member. And especially for those whose vocations fall under the creative heading, creating more blank space on the canvas is essential to maintaining and improving your art.

Special thanks to Josh Itzoe, a colleague and good friend, for encouraging me to undertake this exercise several years ago.

If you enjoyed this post, please let me know on Twitter @TimMaurer, and if you’d like to receive my weekly Forbes installment via email, click HERE.

Top 5 Posts of 2013 and A Thank You Gift

Top Blog Posts of 2013-01One of the great blessings of my career—heck, my life—is the opportunity I’ve had to communicate through the written word.  Thank YOU for reading my work.  I write for YOU, and to thank you, I’m including a gift at the end of this post.

In 2011, my bucket list daydream of having a book published came true; then in 2012, I began actively contributing to Forbes.com, for which I write a weekly blog post.

I enjoy the creative process enough that if only one person read a post, article or book that I wrote—and benefited from it—that would be reward enough for me.  The pleasant surprise of 2013, though, was that far more people read and responded to my work than I ever could have imagined.

Even more of a shock, however, was the subject matter of the posts that became popular and garnered the most attention.  I’m a financial planner who writes about the intersection of money and life, but my most viewed posts definitely skewed toward the life part of that equation.

In case you missed any of them, here are the top 5 most viewed posts of 2013:

5. Haiti Doesn’t Need Our Help (Forbes.com) — Though it only ranks fifth in views, I think this would be my personal favorite—and most important—post of 2013.

4. 10 Days Is the Magic Vacation Number. Here’s Why (Lifehacker.com) — This post was initially published on my Forbes blog, but Lifehacker republished it (with permission), where it racked up an even higher number of views.

3. Two Reasons Why Copying People Won’t Make You Successful (Forbes.com) — On this most recent post within the top five, I got to work with two of my favorite “success authors,” Michael Hyatt and Laura Vanderkam. We discussed why the path to success isn’t necessarily found following someone else’s footsteps.

2. What you don’t know about Social Security can hurt your retirement (CNBC.com) — I’ve had the privilege of working with CNBC for several years on video projects, but this article was my first contribution on the written front.  I’m looking forward to more of these in 2014.

1. 7 Reasons I Dumped Facebook (Yahoo! Finance) — I’m still dumbfounded by the popularity of this post.  Yes, I decided to quit Facebook and hesitantly chose to write about why.  Apparently, this sentiment happened to hit the online airwaves at just the right time, because after getting more views than anything else I’ve ever written for Forbes.com, it was picked up by Yahoo! Finance and went viral on their site. Crazy.

I’m really looking forward to 2014, excited about the opportunity to bring money to life—and life to money—in writing.  I’m soaking up wisdom from the Forbes editorial staff, have two new book projects in the works and was humbled by CNBC’s invitation to join their inaugural group of 20 financial advisors making up the CNBC Digital Financial Advisor Council.

But I’d love to hear what YOU want to read more of in 2014.  Please shoot me an email at tim[at]timmaurer[dot com] with your thoughts.  (Yes, I know email address is not “spelled” correctly; it’s so robo-spammers don’t snag my email address.)

Lastly, to help kick off YOUR new year, I’ve packaged a bunch of my work from 2013 in the form of a free financial plan for your consumption.  Just click HERE and you’ll be able to save the PDF file.

THANKS AGAIN, AND HAPPY NEW YEAR!

If you enjoyed this post, please let me know on Twitter @TimMaurer, and if you’d like to receive my weekly Forbes installment via email, click HERE.

5 Ways To Prepare Your Portfolio For A Government Shutdown

Screen Shot 2013-09-25 at 7.11.50 PM

Tim discussed this issue on CNBC this week.

We all stare agape, shocked that the U.S. government has allowed splintered self-interest to rise above its collective duty.  No, we’re actually not surprised.  Sadly, we’ve come to expect this.  The question we have to answer is: Are we going to alter our lives, our financial plans and our portfolio strategies to accommodate D.C. drama?

Unfortunately, there isn't a specific portfolio prescription for political gamesmanship or government gridlock.  Heavy handed federal influence in the aughts, especially since 2008, has taught all of us that the government may impose its fractured will at any time, effectively changing the rules of the game.  But the strategy to deal with this is little different from dealing with one of the market’s constants: UNCERTAINTY.  Consider utilizing the following five strategies in response to today's brand of uncertainty:

1. IF you have created a portfolio that is designed to accomplish your objectives over the long-term through deliberate diversification, you may be wise to respond to the news of a government shutdown by simply IGNORING it.  (This is my favorite response.)

2. Crises of every variety can serve as a good reminder to do what we should be doing anyway in our management of investments—like reallocating. This may be a particularly good time to siphon some U.S. exposure, which has been on a seemingly undeserved tear this year, shifting it to the international exposure in your portfolio which has likely lagged.

3. Regardless of the market's direction, increased uncertainty tends to create more volatility in the markets.  If your sanity will only be maintained by “doing something” at this time, you may respond to this aggressively by purchasing the VIX through a volatility index that rises when the spread between market peaks and valleys rises.  Or, respond conservatively by increasing cash allocations.

4. If this government standoff extends, the economy's recent trend toward optimism may also revert, causing the Fed to balk at its expressed intent to taper its bond-buying.  If so, you might get another chance to re-finance your mortgage and slow any strategies you've employed that are designed to hedge against rising interest rates.

5. Recession (or depression) in Europe, protracted Middle-East conflicts, war in Syria, slowed growth in China, student debt bubble, government debt bubble… Take your pick of the crisis du jour that could send our high-flying S&P 500 into the correction (or worse) many feel it deserves.  Could a government shut-down be the back-breaking straw for this weary camel?  If you rode the market all the way down and then all the way up, it might be a good time to conduct a portfolio analysis with the goal of making capital preservation a higher priority.  To stay on the ride isn’t investing—it’s gambling.

Inaction is likely the best action to take in the face of this month’s government drama as long as you have a well-conceived, well-implemented investment strategy.  But this flavor of uncertainty could also be a great reminder to do what you should be doing anyway—ensuring that your portfolio is not a collection of hunches but a well-oiled machine constructed of wisdom, knowledge and foresight.

If you enjoyed this post, please let me know on Twitter @TimMaurer, and if you’d like to receive my weekly Forbes installment via email, click HERE.

How Music Can Save Your Marriage And Financial Plan

IMG_6338My brother, Jon, and I have a recurring argument with our lovely wives, Amanda and Andrea, respectively.  They believe that good music is in the ear (as it were) of the beholder.  Jon and I cringe, like Will Smith and his poor children, subject to the needless visual supplements required to make the music of Miley Cyrus and Lady Gaga interesting enough to consume.  Seemingly incapable of withholding the raft of musical elitism that will surely land us in the bad graces of our beloved, we’re drawn to the life-zapping light like flying insects.

“No, you don’t understand,” I assert, “there is good music and there is bad music.  Like too much sugar will rot your teeth, too much ‘ear candy’ will rot your…your soul!”  (After all, it’s only Andrea’s best interest with which I’m concerned.)

“Then why don’t you marry Jon, so you can listen to your favorite music all the time?”

These little spats are just for fun (usually) and give our lives together a unique texture, but too much variability in the ways we live and love is draining and too often leads to a marriage requiem.  Discord over financial issues is often cited as the leading cause of divorce, and while the statistical jury is still out on whether money issues are a leading or lagging indicator of marital health, it’s clearly an issue worthy of our attention.

Here are three ways that you can apply musical theory to maintaining financial harmony in your household:

1)     Establish a rhythm – In music, the rhythm is the foundation of a song.  Musicians establish a song’s rhythm first through the time signature, musical math composed of measures and beats per measure.  Rock songs, like Led Zeppelin’s “When the Levee Breaks” with its iconic drum beat, are typically written in 4/4 time signature.  Contrast that with the Dave Matthews Band’s “Seven,” written in 7/8 time, a rarity in rock and pop that has a notably different rhythm.  Another time signature easily spotted is 3/4, as in Johann Strauss’s “Vienna Waltz,” with its recognizable 1-2-3 repetition.

Every household has a rhythm of cash flows—money comes in via income and goes out as expenses.  Regulating this rhythm to the best of our abilities allows our household to settle into a comfortable pattern.  This becomes more of a challenge when your pay comes at a different interval than your expenses, but you don’t have to be a virtuoso to accommodate for these differences.  Divide your conservative estimate of your annual income by 12 and you have your monthly budget to allocate.  Then divide any annual expenses by 12 to be sure you set aside the necessary coin to pay for them when they arrive.

2)     Create a melody – Rhythm makes a song work, but it’s the melody that makes it memorable.  You don’t have to love classical music to get Beethoven’s “Fur Elise” stuck in your head.  Great melodies are often reincarnated, like when Billy Joel reprised Beethoven’s “Sonata Pathetique, Movement 2” in his song “This Night” (listen to the chorus at: 59).

Crafting a comfortable rhythm helps keep our finances on track, but we create a melody in choosing how to spend our excess cash flow.  Maybe you’re known for generous hospitality, like one friend of mine whose parties are not to be missed.  Maybe you’re making a concerted effort to provide meaningful support to a worthy charity or broadening your children’s horizons through regular travel.  Or maybe you’re foregoing income to invest your time as a mentor or student.

3)     Manage dissonance – Dissonance is the sound produced when two or more musical notes don’t appear to mesh well.  If you hit three adjacent white keys on a piano at the same time, you’re likely producing dissonance.  Musically speaking, dissonance can be used to good effect, creating atonal suspense that is eventually resolved, but left unresolved, it’s likely a song that no one wants to hear.

Financially speaking, every couple is born in dissonance.  Our individual personalities, strengths and weaknesses, compounded by our personal history with money, make it impossible to strike a rich major chord every time.  Our goal should be to recognize the dissonance when it arises, treating it not as failure or a misplayed note in our duet, but instead as an opportunity to work toward a deep resonance when the dissonance is resolved.

Jon and I had some fun a couple years back riffing on this topic in a video we created called “Making Financial Music.”  If you enjoyed this post or video, please let me know on Twitter @TimMaurer, and if you’d like to receive my weekly Forbes installment via email, click HERE.

[youtuber youtube='http://www.youtube.com/watch?v=xntChpPmtq4']

Confessions Of A Self-Righteous Fee-Only Financial Planning Evangelist

250px-Saint_Francis_of_Assisi_by_Jusepe_de_RiberaEvangelical Christians have a PR problem, wouldn’t you agree?  If you want to evoke the scent of condescension, judgmentalism, self-righteousness or hypocrisy, all you need to do is tack on the adjective “evangelical” to the person, place or thing you’re describing, and voila—your work is complete.  The original evangelists—the Disciples, the Apostle Paul, Saint Augustine, even Christ Himself—don’t seem to engender so much animosity (today), but modern-day zealots who invoke these ancient names in pursuit of conforming others to their worldviews have become an easy target for cynicism, in many (while certainly not all) cases deservedly.  Self-righteous fee-only financial planning evangelists—of which I am one—are beginning to face a similar dilemma and may require an act of God to remake their reputation, especially within the industry.

My confession should not be seen as sins for which every fee-only advisor is guilty, but several others have shared similar thoughts with me—some making even bolder statements and passing firm-wide edicts outlawing comparisons designed to disparage the “unholy.”  While there are many individual acts to be brought to light, all of these indiscretions fall under a single umbrella transgression:

Instead of highlighting what we are FOR, we have magnified what we are AGAINST.  Instead of making our case to new and existing clients based on who we ARE, we have taken the more expedient route of peddling who we are NOT.  For example:

  • We are NOT salespeople.  We delude ourselves.  Everyone is selling, from the Pope, the priest and the pastor…to the doctor, the professor and the journalist…to the accountant, the attorney and the advisor…to the agent, the broker and the banker…all the way down to the butcher, the baker and the candlestick maker.  Whether it’s a product, a process or a personality, we all have something to sell.
  • We are NOT biased.  Yes, the bias of commissions is the most evident, but less evident biases can also be dangerous, and sometimes even more so when papered over with apparent altruism.  Hourly billing has an inherent economic bias to stretch an engagement.  Flat fees incentivize the service provider to clip their work, moving on to the next fee.  And those compensated by a percentage of assets under management have a clear conflict to prefer managing more, even if those assets would be better applied to debt repayment, real estate acquisition or investment in a small business.  All of us are biased, and to dispute otherwise is self-deception.
  • WE are NOT non-fiduciaries.  The spirit of fiduciary is vitally important, and the evolution of the industry depends on its application, but the word (fiduciary) itself is relatively meaningless and occasionally misleading.  Unfortunately, we have allowed the word fiduciary to become just another mousetrap to be sold, trampling the spirit of the word in our haste.  A true fiduciary is too busy acting like one to spend time yelling at those who they believe are not.
  • We are NOT, God forbid, Merrill Lynch or Morgan Stanley.  While the trend was already underway prior to 2008, the move away from proprietary wire houses to independent advisory firms turned into a tidal wave after the financial collapse.  It was primarily the investment banking and trading arms of behemoth brokerage firms that earned the public outrage, but while those complicit started raking in record bonuses the year after the crisis, tens of thousands of financial advisors were left with a heavy anchor on their business cards.  Needless to say, we didn’t exactly throw them a life vest.

Saint Francis wasn’t born with a halo around his head and animals flocking to his crib.  Early in life, he apparently lived it up as a wealthy merchant’s son and even tried his hand at being a warrior for his home town of Assisi prior to receiving the revelations that redirected his path.  The movements for which he became known, however, were enacted less through fiery rhetoric and more through penitence.  While the exact source is disputed, no one doubts that this quote attributed to Francis exemplified his life and work: “Preach the gospel at all times.  When necessary, use words.”  We as fee-only financial advisors would do well to seriously consider this admonishment.

Is it possible that the next phase of the financial industry’s inevitable transition (as well as the Church’s) will be led not by rigid demands for legalistic purity, but instead by a humbler, quieter, simpler, more effective practice grounded in affirmation?

If this post resonated with you let me know on Twitter via @TimMaurer, and if you’d like to receive my weekly post via email click HERE.

10 Reasons To Take A 10-Day Vacation

10 Day Vacation-01For only the second time in my adult life, I just completed a vacation of more than seven days—10, to be exact.  Corroborating my first experience, I am now convinced that there is a certain magic to the 10-day vacation and have resolved to make them an annual habit.  Here’s why:

1. Most importantly, a 10-day vacation gives you the time necessary to surrender, to capitulate, to truly vacate.  It wasn’t until fully four days into our Grizwoldian adventure that my wife was able to observe a genuine change in my demeanor.  “You just seemed to visibly loosen up in that moment,” she told me.  The moment she was referring to was when she, our two boys and I got caught in a torrential downpour in the middle of a bike ride.  I wasn’t an overbearing ogre early in the week, but I was still in work mode; a tad too productive, efficient and compliant for vacation.  It took me the first four days of vacation to transition from being a hesitant bystander to a willing participant.

2. Travel consumes a lesser percentage of your total vacation time.  If you’re going someplace worth going, you’re likely sacrificing a day getting there and another getting back.  Whether by plane, train or automobile—and even if the actual travel time is only half-a-day—the stress and logistical maneuvering consume a full two days.  That’s almost 30% of the seven-day vacation, but only 20% of a 10-day break.

3. Because travel consumes proportionately less of the 10-day vaca, it also opens the door to a traveling vacation with multiple stops.  With the family truckster fully loaded, we drove to Charleston, South Carolina from our home in Baltimore for three days prior to heading northward to Williamsburg, Virginia for another week—a highly improbable feat if you only have seven days to spare.  This change in geographic context gave our single vacation the feel of two separate trips, each with their own set of lasting memories.

photo4. You’re gone long enough that you’re forced to off-load your duties at work.  If I take a three or four-day weekend, I rarely even set my email out-of-office notification or update my voicemail message.  I’m effectively taking a vacation while still on the clock in my mind.  When I take a seven-day vacation, I’m hesitant to completely check-out of my work responsibilities and even feel guilty asking for help.  But if I’m going to be missing days in more than two different work weeks, I really have no choice but to arrange for enough back-up help at the office to truly separate myself from the duties I’m hesitant to relinquish.

5. You’re gone long enough that you’re forced to budget financially for the vacation.  Heeding Carl Richards’ advice, I don’t take a trip of any length without having budgeted for it.  It takes away from the refreshment I seek when I have to wonder how I’m going to pay for the vacation when I get home.  The additional time and cost of a 10-day vacation really demand budgeting in advance of your departure.  Additionally, I recommend seeing where you stand financially five days in so you can recalibrate if necessary for the second half of your trip.

6. A 10-day vacation leaves sufficient time for the creation of memories through experience and the catharsis of do-nothing relaxation.  One of the books I enjoyed over vacation was Laura Vanderkam’s, What the Most Successful People Do on the Weekend.  I found much of the wisdom therein applied just as well to vacations as to weekends.  Vanderkam suggests that we “set anchors”—activities to which we apply some forethought, with the aim of memory creation—and allow relaxation to fill the gaps in between.  None of us wants vacation to feel like work, filled with have-to-dos, but these anchors are, in contrast, want-do-dos.  For us, a couple anchors were to take a horse-drawn carriage tour of downtown Charleston and to ride our bikes as a family into historic Williamsburg for Colonial-era root beer and ginger cakes.

photo[1]7. You have the time to actually develop rhythms of life unique to that particular vacation.  One of my favorite things to do on vacations is to find new rituals that seem to apply to that particular area and our family’s phase of life.  Personally, I try to maintain some semblance of a workout regimen so I don’t feel quite so guilty about over-exposing myself to the local cuisine, so I found a fitness center I could ride my bike to most mornings.  Our boys, Kieran and Connor, are at those ages (nine and seven) when they could swim all day if you’d let them, so most nights we went for a night swim to cap off the day.  But it takes a few days to explore and find the rhythms that will work in a particular place and time.

8. You get the joy of seeing the week and weekend vacationers leave—while you’re kicked back “working” on reading your second novel by the pool.  There is nothing fun about leaving an enjoyable vacation, but when your vacation begins or spills over into the middle of a week, you get to watch other people yell at their kids for slow-playing the departure process while you order a fruity umbrella drink.  Those days on which everyone else is travelling and checking in or out are also great days for planning an anchor event (see #6) when you’ll likely have less competition.

9. You can avoid the dreaded vacation hangover.  Long weekends can feel torturously short and seven-day vacations often leave you wishing you could go back in time, but by the time a 10-day vacation is over, you’re starting to warm to the idea of getting life and work back to normal.  The idea of sleeping in your own bed has increasing appeal, eating out has started to weigh you down, spending money like the Greek parliament has begun to feel self-indulgent and you’re almost anxious to get back to the daily rhythms of work and rest.

10. You come home a better spouse, parent, employee­—a better person.  A 10-day vacation has the highest probability of providing the rest, relaxation and lifelong memories that we all hope to get, but rarely do, from the highlight of our summers.  Conversely, taking fewer days often leaves a residue of dissatisfaction that leaves us perpetually wanting more.  So go ahead, tack a few extra days onto your next vacation.  We’ll all be better for it.

If this post resonated with you let me know on Twitter via @TimMaurer, and if you’d like to receive my weekly post via email click HERE.   I’d also love to hear the tricks that you’ve discovered to making a great vacation, so please educate us in the comments section.

How To Win $120,000 Playing Poker

poker_hand1My wife, Andrea, won $120,000 at Resorts Casino in Atlantic City playing Caribbean stud poker in 1997, before I even knew her.  She parted with exactly $16 in that fateful hand, and received 7,500 times her investment after being dealt a royal flush of a-girl’s-best-friend diamonds.  For the abstainers, that’s a ten, jack, queen, king and ace of the same suit—the best possible hand in poker.  The chances of being dealt such a hand are one in 649,740.  To put that in perspective, the odds of getting struck by lightning throughout your lifetime are one in 3,000.

Luck Be a Lady

After playing for over four hours with a $100 budget for the night at the Caribbean stud tables, Andrea was down to six dollars in chips and expecting it to be her last hand.  Indeed it was.  She made the minimum blind bet of five dollars to play and anted up an additional dollar to be eligible for the progressive pot.  The progressive pot fills up (and up and up) with the aggregate of the one dollar side bets at a collective of tables in the casino until someone with a qualifying hand earns some or all of it.  The dealer shuffled and dealt.  Andrea peeked at her five cards to reveal a royal straight flush arranged in the following order, from left to right: ace, king, queen, ten, jack.

As she choked down her leaping heart, she realized she needed to borrow a $10 chip from a friend to satisfy the minimum raise to win.  But even then, the dealer had to have a qualifying hand of at least an ace and a king, the hand that falls just below a pair of twos.  If the dealer has bupkis, so do you, receiving only a doubling of your initial bet—and no progressive pot.  The dealer qualified.  Then his face turned white when he saw Andrea’s hand.  Then everyone at the table saw Andrea’s hand.  Then everyone in the casino heard Andrea’s table erupt with a noise that sounds like corporate joy, but actually represents exasperated, alcohol-soaked, oxygen-infused envy.

Everyone now darted their gaze to the centrally located progressive pot sign, as the dealer struggled to turn the key to stop the number from rising, faltering enough to add a few more thousand dollars to Andrea’s winnings—in  all, $118,529.  The dealer was whisked away by the pit boss and Andrea was escorted to the casino teller as zombie-eyed gamblers pawed her in hopes of a mystical transmission of luck.  After tapes were reviewed to confirm she hadn’t gamed the system and taxes were withheld, Andrea walked with a pocketful of cash and a check for $81,786.  Not bad for a night on the town.

Survivorship Bias

THIS is the story the casino wants you to hear.  (They don’t want you to hear that Caribbean stud offers some of the worst odds at the casino.)

THIS is called survivorship bias, and it’s the foundation upon which casino empires and the “success business” have been built.

Survivorship bias draws our attention away from the failures which are more numerous to the successes which are fewer.  It makes us think that because Andrea won $120,000 off of a $16 hand of Caribbean stud poker that it is somehow more likely that we will.  Survivorship bias inclines us to believe that following the prescription of someone who’s enjoyed abnormal success—in their career or marriage or parenting or investing or any number of pursuits in life that require an incalculable number of variables to align in our improbable favor—will help us achieve a similar level of success, when the success guru du jour may have simply been dealt the 649,740th hand.

David McRaney gives a much more thorough explanation of survivorship bias in his article of the same name, warning us that “the advice business is a monopoly run by survivors,” invoking Daniel Kahneman’s brilliance: “If you group successes together and look for what makes them similar, the only real answer will be luck.”  But McRaney’s is not a pessimistic manifesto for underachievers.  He addresses the noticeable differences seen in the lives of those deemed lucky contrasted with those who aren’t.  Based on compelling research collected over a decade of observance, the following conclusions are reached:

Unlucky people are narrowly focused…crave security and tend to be more anxious…remain fixated on controlling the situation…as a result, miss out on the thousands of opportunities that may float by.

Whereas:

Lucky people tend to constantly change routines and seek out new experiences…tended to place themselves into situations where anything could happen more often…exposed themselves to more random chance than did unlucky peopletry more things, and fail more often, but when they fail they shrug it off and try something else.

This, however, is far from the self-deceptive “gotta play to win” approach off of which casinos have thrived.  The lucky put themselves in situations where they have a chance to succeed today, but never take such enormous risks that they lose the ability to take a chance tomorrow.  Yes, the optimist who falls down indeed gets back up, but the overly-optimistic gambler who gets hit by an 18-wheeler typically stays down.  As McRaney puts it, “success boils down to serially avoiding catastrophic failure while routinely absorbing manageable damage.”

In keeping with this theory, Andrea’s big take in Atlantic City wasn’t her first or last display of luck.  But to her, suffering the embarrassment of, say, calling a radio station for the chance to win a trip to the Emerald Isle, is a small price to pay.  And this gent of Irish descent very much enjoyed that trip.

If you enjoyed this post, let me know on Twitter via @TimMaurer.

Can Financial Experts Agree On Anything?

IMG_0139The level of public disagreement in the financial kingdom—which adds financial media, gurus, educators, authors and bloggers on top of the behemoth financial industry—has become so prominent that the public doesn’t know who or what to believe.

DIFFERENTIATION

Disagreement—or put more politely, differentiation—pays the bills.  It puts us on the map, drawing attention to us and our ideas.  Differentiation isn’t inherently bad, but it’s certainly not always good.  “The thing is, differentiation is selfish,” says Seth Godin, marketing author/guru extraordinaire.  “Most customers, of course, don't have the same selfish view of the market, the same obsessed knowledge of features and benefits.”

We, as financial experts, might consider acknowledging that those whose patronage we seek don’t care nearly as much as we do about that which differentiates us.  Their lives do not hinge (as ours often seem to) on the difference between passive and active investment strategies, term and permanent insurance, fee-only and fee-based planning, fiduciary and suitability standards, capital gains and ordinary income tax rates, and the list goes on and on.

Even though we may be willing to sacrifice our very livelihood, devoted to differentiating on one or more of these issues, most people who seek the opinions of financial experts just want a better life.

THE FINANCIAL COMMON GROUND PROJECT 

The differentiation frenzy came to a head a few weeks ago when Dave Ramsey reared back and threw a round-house tweet at a collective of financial planners who aggressively questioned the validity of his investment approach.  I wondered in a blog post response if a diverse group of financial experts would come together to find common ground, to affirm what we jointly believe to be the foundational principles of personal finance, to momentarily set aside our differentiation and speak in a single voice for no commercial benefit.

Over 30 experts from a wide variety of specialties and four different countries answered with a resounding YES.  Together, we co-authored a list of 12 Unifying Principles of Personal Finance that we hope experts and consumers alike can support and benefit from.

The only question now is, are we the only ones?  Please read the list below and click HERE to show your support for this initiative:

THE UNIFYING PRINCIPLES OF PERSONAL FINANCE

  • Progress:  The benchmark for success in personal financial planning is progress, not perfection.  Excellence is more a product of good habits than a revolutionary event.
  • Discipline:  A household must consistently spend less than it earns, regardless of the level of income.  The foundation of financial success is a disciplined cash flow system (such as a budget), which is designed to make household spending decisions purposefully and in advance.
  • Debt:  Debt wisely used can help build wealth, but fueling unsustainable lifestyles with borrowing is the quickest path to financial ruin.  We are well-served to pursue an eventual debt-free path.
  • Buffer:  Changes, surprises and failures are guaranteed, but their impact can be minimized through the creation of a financial buffer.  This buffer—a cushion of cash savings—will help lessen the burden of emergencies and other unexpected events.
  • Risk:  It is better to make an informed risk management decision than to act on a consequential reaction.  Many risks can be adequately managed through risk avoidance, risk reduction or self-insuring through risk assumption.  However, the potential for catastrophes from which a household could not survive financially should be transferred through insurance.
  • Investing:  Investors have succeeded utilizing strategies on a continuum ranging from entirely passive to surprisingly active.  None succeed purposefully, however, without following a disciplined strategy.
  • Taxes:  Taxes are an important element of financial decisions, but rarely the most important.  Tax minimization is wise while tax evasion is illegal.
  • Giving:  Giving of time and money is good for everyone, donors and recipients alike, and may also result in a reduction in taxes.
  • Future:  Plan for tomorrow, live for today.  Failure to plan for major expenses, such as education and retirement, is folly; but deferring all gratification for the future strips the joy from life today.
  • Estate:  Everyone, with very few exceptions, should have well-conceived and clearly written estate planning documents including, at minimum, a will (with or without a revocable trust), a durable financial power of attorney and advance directives (including a health care power of attorney and living will).
  • Legacy:  Leaving a legacy—a relational impact on friends, family and community—is as or more important than leaving an estate—the sum of your assets less your liabilities at death.
  • Guidance:  Whether from a book, blog, article, class, radio program, TV show, advisor or specialist, financial advice is only beneficial to the degree that it is consistent with your values and goals and leads to action.

To learn more, sign-on or give us your thoughts, please click HERE or navigate to www.financialcommonground.com.