5 Ways To Prepare Your Portfolio For A Government Shutdown

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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.

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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.”

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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?

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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.

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.

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.


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.

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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.


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 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:


  • 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.

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

7 Reasons I Dumped Facebook

facebook-01It’s official.  I’m off the Facebook grid.  Nobody offended me.  I didn’t have a bad experience.  While I’m not thrilled about the idea of Big Brother watching my every move, I’m not particularly paranoid about social media sharing.   Therefore, I’m sharing why I’m dumping Facebook and committing to Twitter and Instagram.

1)     Facebook sucks time from my life, and unlike money, time is a zero sum game (thanks to Laura Vanderkam for reminding us).  Without question, some of the time I spend on Facebook is edifying and life-giving.  For example, my good friend, Nick Selvi—a husband, father, teacher and musician—is stricken with stage four rectal cancer, and his Facebook page keeps me informed of the battle he and his family are waging.  I’ll miss that, but hopefully I’ll be a real friend and call and visit to support him.

2)     Most of my Facebook friends aren’t (actually friends).  They’re not enemies.  It’s not that I wish them ill, but for the majority of them, there’s a reason we don’t associate other than on Facebook.  For most, it’s not because of a geographic disparity or because they don’t have an email address or phone number—it’s because we’re simply not actual…friends.  (This makes me wonder if the reason I initially got on Facebook was actually a matter of pride.  “How many virtual friends can I assemble?”  I appreciated the reminder from Leo Babauta this week that comparing ourselves to others is an exercise in futility.)

3)     There are other (better) options for photo sharing.  Seeing my friends’ and family’s pictures, and sharing my own, is what I like most about Facebook.  A picture and a caption can generate a belly laugh or bring tears to my eyes.  I also know that it is the real-time exchange of family pics that likely inspired 90% of the grandparents who are on Facebook today—so I’m not going to leave them hanging.  Now instead of merely using Instagram to obscure my lack of photographic skill and then upload pictures on Facebook, I’ll simply use Instagram as my photo exchange medium, inviting only family and close friends to follow me there.

4)     Facebook brings out the worst in people.  How I didn’t quit Facebook during the last presidential campaign, I’ll never know.  The willingness of so many to spew half-baked punditry that almost assuredly alienates them from half of their friends—and convinces precisely no one of their opinion—boggles the mind!  Yes, these offenders are buoyed by the 10 Likes they get from the people who think similarly, but scores more harden their opinion in opposition and are likely offended in the process.  (If this point doesn’t resonate with you, you may be an offender.)

5)     I learn more on Twitter.  Twitter is to Facebook as a biography is to a novel.  I know there’s nothing wrong with reading fiction, but I confess that I (wrongly) feel a little guilty when I spend time reading something that didn’t (or won’t) actually happen.  I enjoy being on Twitter, much as I enjoy reading a good biography, but I’m allowed to feel like I’m better for having done so—that I’ve learned something beneficial.  Twitter is now my number one source for hard news and opinions I value, as well as a relational connecting point.  Twitter is more of a resource and less of a popularity contest.  And let’s face it, for all too many, Facebook is really closer to the intellectual or emotional equivalent of eating a tub of Ben & Jerry’s in one sitting.  (It’s not good for you.)

6)     The presence of ads on Facebook is getting ridiculous.  I care more about you than the fact that you like Cherry Coke.  I certainly care more about you than whatever Facebook wants me to buy, and it seems like there are increasingly more ads every day.  Am I the only one who notices that?

7)     Less is more.  I’m on a mission to simplify life, to slow it down to a pace at which it can actually be consumed, not just tasted.  I don’t want to hide behind the ubiquitous, “I’m really busy” as a badge of honor.  I want a lower cost of living (not just financially) and a higher quality of life.  I want to limit the number of [things] that compete for my attention so that I can apply more attention to those [things] I care the most about.  Less is the new more.

Goodbye, Facebook.

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

(And just to keep me out of any potential regulatory hot water, my comments here are regarding Facebook as a service—not an investment.)

Unloc(k) The Mystery Of Your 401(k)

401k Lock-01Last week, in my review of the Frontline program, “The Retirement Gamble,” I promised to follow-up with a short blog series giving concise direction on how to demystify some of the more confounding elements of personal finance, beginning with the foremost culprit of “The Gamble” (aside from J.P. Morgan Chase, of course)—the 401(k):

Recent action by the Labor Department requires more transparency in the reporting of fees in 401(k)s.  “While the intent and spirit of the legislation was good, I’ve found the implementation was pretty ineffective,” says Josh Itzoe, author of Fixing the 401(k).  “It’s possible to be compliant from a regulatory standpoint and still make the information totally confusing and unclear.  I think that is where we are.”  While you’re overcoming your shock that the government has failed to simplify the regulation of [anything] to a satisfactory degree, consider taking these three steps to unlock the mystery of your 401(k) or other employer sponsored retirement savings plan:

1. Educate yourself on the structure of your 401(k) and the associated fees.  Yes, I know this likely falls just below rolling in poison ivy on the totem pole of ways that most of us would like to spend our time, but we sacrifice the privilege of voicing our displeasure with the state of our primary retirement savings vehicle when we don’t even understand its basic structure.  Start with what you already likely know: Do you get a company match, and if so, how much do you have to contribute to reap its full benefit?  Then, move on to the fine print describing your company’s requirement to actually follow-through on its match (they can likely skip matching in certain circumstances) and when it is paid.  Review your investment options and their short-, mid- and long-term performance.

If you’re not satisfied with the amount of information provided, plug your mutual fund options into the “Quote” box in the top-center of Morningstar.com to see what they think of the fund.  Theirs is not the last word, but their findings can add to the context of your decision-making.  And while I believe that it can be worth it to pay truly gifted fund managers for outstanding work, 401(k) mutual fund options are notoriously mediocre.  This means that finding the lowest cost funds in your composition of a diversified portfolio is of paramount importance.  Emily Brandon’s article, “What You Need to Know About 401(k) Fee Reports,” offers a process designed to enlighten us on making the most of the new fee disclosures, which unfortunately are cryptic enough to render them nearly useless without guidance.  If you end this journey of discovery just as (if not more) confused as when you began, get some help; preferably from someone who won’t turn your confusion into a sales opportunity.

2. Speak up!  It’s a tiny minority of us who can go into the office the next day and restructure our employer-sponsored retirement plan, but wheels don’t squeak unless you turn them and we all know which wheels typically receive oil and in what order.  “You may not have the power to change the plan, but you can and should provide feedback to your employer about the plan,” says Roger Bair, director of retirement plan services at the Financial Consulate, Inc.  The chances are also good that your employer would benefit just as much from improving your 401(k) as you would, but it won’t be easy to affect change for numerous reasons.  (Among those reasons, your boss might lose a golf buddy if the plan is replaced!)  I wouldn’t necessarily recommend going quite as far as Maya in Zero Dark Thirty, writing the aggregate number of days you’ve been waiting for action on your boss’s office wall every morning, but pleasant persistence can go a long way.

3. Control what you can.  My biggest concern with Frontline’s “The Retirement Gamble,” as well as other notable critiques of the financial industry’s retirement plan mismanagement, is the less-than-subtle implication that the financial industry is so bad and 401(k)s are so complex and the effort of saving enough is so monumental that the majority of Regular Joes can do little more than raise the white flag and give up on retirement savings.  I agree with almost all of the criticism, but I’m unwilling to concede that the battle is lost.  Bair guides that “you should use the best investments and make the best asset allocation you can given the tools that you have.”  Itzoe encourages that the primary determinants of successful nest egg building—the amount saved, being globally diversified and choosing the best available funds with the lowest possible costs—still fall within our control.

In the 401(k), we see the mess created when corporate self-interest, profit motive in the financial industry and regulatory bungling collide, but for most of us, the 401(k) is still the best gig going for increasing the probability of a comfortable retirement.  So get to know your plan.  Better.

Retirement Doesn’t Have To Be A ‘Gamble’

Retirement Gamble-01If you missed the well-documented, artfully produced PBS Frontline program, The Retirement Gamble,” here’s the nutshell version: You’re screwed and it’s the financial industry’s fault.  This is a piece that is absolutely worth your time to watch if you haven’t yet, but I will warn you that it takes on a bit more of a sensationalistic tone than I’d hoped for from PBS (maybe because the chief correspondent is also one of the protagonists in the story?).

Yes, it’s true that the financial industry deserves the vast majority of the criticism it receives, but I’m pretty sure that if you watch the video in reverse, you hear the words, “J.P. Morgan Chase is Beelzebub.”  Outright demonization is a stretch, even if only a tiny one.  And Jack Bogle, the father of passive investing, may be the closest thing to a saint in the financial industry, but he’s so deified in this program that by the end I thought I was watching a Vanguard commercial.  And most importantly, if you’re going to take an hour to scare the crap out of people—telling them what’s broken and what doesn’t work—I’d like to see a bit more on what works and how we can mend what’s broken.  And yes, PBS, that’s an implicit challenge to follow-up “The Retirement Gamble” (TRG) with a part two: “Retirement Doesn’t Have To Be A Gamble.”  But just in case they’re not already filming and don’t read this post, let me attempt to paint a slightly more balanced, if not hopeful, scenario:

YOU still play the primary role in the success of your retirement planning.  You still choose how to spend your income and how much to save.  I can’t have been the only one to notice that one of the aggrieved “nobodies” featured in TRG is shown working on an Apple laptop at her kitchen table equipped with a flat-screen TV, sitting in front of stainless appliances.  I’m not judging her and I’m not sermonizing you, but most of us have limitations placed on our income that require us to make decisions to endure some form of sacrifice today in order to provide for tomorrow.  While compounding gains may be the engine propelling us toward a comfortable retirement, it’s not going anywhere without the fuel—our contributions.

YOURS is not as hopeless a situation as TRG makes you feel.  Crystal Mendez is one of the regular Janes featured in the program.  She’s 32 years old and making $70,000 per year, decent money for a teacher, and she’s saved $115,000 already for retirement.  According to a recent Fidelity study that judges our retirement readiness based on multiples of current earnings at different phases of life, Crystal is well ahead of the curve.  The study suggests she should have approximately 70% of her current salary saved—and she’s already at 164%.  (Nice job, Crystal!)  Furthermore, if she saves 10% per year until she’s 67 years old (when she’ll be eligible for full Social Security benefits), she’d then have $2,442,544—17 times her salary if we estimate she earns a 7% annual average rate of return and her salary increases only 2% each year.  According to Fidelity, she’d only need eight times her salary for a comfortable retirement at the age of 67.

Crystal's Path

YOU don’t really want the good ol’ days anyway.  We have a habit of painting the days of yore as an idyllic time, when everyone joyfully punched a time clock for the same benevolent company for 40 years straight; the same company that then subsidized a blissful 20 year retirement spent golfing and sipping lemonade on a wrap-around porch attached to a Cape Cod house unencumbered by debt.  But guess what, even if that sweetheart deal existed then, and more importantly today, we wouldn’t want it!  According to CNNMoney, “…by the time they reached their forties, the boomers worked about 11 jobs—equivalent to a job change roughly every two years.”  Generations X and younger hop jobs slightly more.  And is it possible that the employers of former generations weren’t solely offering pensions out of the kindness of their hearts, but also because they wanted to make it very difficult for employees to consider leaving their job—and their pension?  It is true that the once fabled “three-legged stool” of retirement—pension, Social Security and personal savings—is now down to a pair of stilts for most baby boomers and likely no more than a pogo stick for Gen X and younger; but a minority of us would trade a lifetime of occupational freedom for the continuation of a portion of our paycheck in retirement.

Yes, the odds are stacked against us.  And no, the financial industry does not exist for the benefit of its customers.  Yes, that’s a shame.  And no, despite a movement of well-intended zealots and justified outrage in the media, we’re not likely to see the Masters of the Universe unseated in less than a generation (although that won’t keep us from trying).  BUT, your chances for a comfortable retirement are still better than a roll of the dice, as seemingly purported in “The Retirement Gamble.”

Over the course of the coming weeks, I’ll be bringing you a collective of wisdom from numerous sources on how you can demystify decisions regarding not only your retirement, but specifically your 401(k) or other retirement plan, mutual fund selections and a couple of the most complex personal insurance products.  That way, regardless of whether or not the fallen angels of the financial industry clean up their act, you’ll be able to make informed decisions.

Don’t Disregard Mom’s Financial Instincts

mothers-day-heartThe collective work of moms everywhere is so incredibly significant that it almost seems too limiting to honor them only one day each year.  Thousands of years of paternalism has allowed society to feel entitled to receive the oft unnoticed contributions mothers offer households, while presuming moms’ ignorance in other categories—especially household finances.  It would, however, be a dreadful mistake to ignore the keen financial instincts of moms.

Married couples have a tendency to dole out household duties in the form of roles for which individuals are best suited.  This is an entirely wise strategy that optimally leads to a more efficient and livable familial space.  But while handling household finances has historically defaulted to the dude in charge of changing light bulbs, taking out the trash and removing vermin, it is a mistake to presume that the mother of the house is the non-financial spouse.

Even if Mom is the household member least interested in asset allocation, insurance deductibles and itemized deductions, it’s vitally important to include Mom’s non-financial thoughts in financial decisions.  This is because personal finance is more personal than it is finance, among other things.  Here are three areas of personal finance where a mom’s stereotypical instincts are especially valuable, if not vital:

1)     Insurance – Guys have earned the stereotype for having a higher tolerance for risk and a lower tolerance for paying for that which doesn’t feature high definition pixels, buttons, wheels or triggers.  We also occasionally struggle to admit when we make mistakes, so paying for something that is intended to protect us from mistakes may seem like wasted money.  “I’m not going to die, our house isn’t going to burn down and I’m not going to have a car accident,” so let’s use that insurance premium money to buy a jet ski.  Yes, even if Mom doesn’t know how to read an actuarial table, her instinct to protect the homestead and its inhabitants from harm is a good one.  Of course, we still want to view insurance through the eyes of a risk manager, not a collector of insurance policies for every known fear, but Mom’s sixth sense brings a healthy balance to insurance decisions.

2)     Investing – Here again, Dad stereotypically makes investing decisions by focusing on that which gives the best opportunity for return, downplaying the inherent likelihood that the stock or fund with the greatest potential for return also possesses the highest probability of loss.  But woe to the man who ignores Mom’s gut feeling to make capital preservation a higher priority in the handling of the family nest egg.  The world’s best investors focus more on risk than return.

3)     Nurturing – Financial planning is a process, not a product, and much like moms are often the parent most attuned to the nuanced evolution of their offspring—from newborn to adult—a mother’s nurturing instincts are well suited to seeing that the financial planning process has a forward-thinking trajectory.  While dads are stereotypically project-oriented—occasionally spending weeks, months or even years in a special place called Oblivion—moms are often best suited to get the myriad of financial to-dos produced in a plan checked off.

It’s rare that we’d range as far as household finances to find affirming words for moms on Mother’s Day, especially when considering the plethora of other tangible and intangible benefits they bring to our families, but financial planning is yet another important subject in which a mom’s innate maternal instincts should be recognized and heeded.