The ivory tower of higher ed, the U.S. government, the financial industry, the bumper sticker barrage, a healthy pinch of pride, and, yes, even our genuine love for our children have all converged to serve up a big fat guilt sandwich for parents of college-bound kids.
We’ve been made to think that we’re damned if we don’t, so we’ve done it—or overdone it, really. We’ve sacrificed our own financial futures for the sake of a supposedly priceless experience in the form of a college education.
Now, before you grab a pitchfork to chase me down from whatever perspective I might have offended, please know that I’m a thankful college graduate. What’s more, I enjoyed teaching at the college level for several years (and likely will again). I’m in the financial industry, I love my kids more than I can express, and I’m proud enough to have adorned my car with a bumper sticker pledging my support for their teams and/or academic institutions.
Perhaps most importantly, those kids I mentioned are 17 and 15—a high school junior and freshman—and, at the very moment this article is published, I am literally attending a college “prospect day” for my eldest at an institution of higher learning that resembles Hogwarts. In other words: I’m a believer in a college education, and I’m right there in the trenches with you.
Do you ever get so caught up in your own head, in your own stuff, that you lose perspective? I can’t imagine a time that would be more inclined to lead us to insular thinking, self-pity, conspiracy theorizing, and perspective losing than this season we’re trudging through.
So in this week’s Financial LIFE Planning weekly installment, you’ll get some perspective that I hope will give you peace and help you make wise financial, and other, decisions:
An exclusive FLiP video chat with Michael O’Neal, the Executive Director of global non-profit, ONEWORLD Health
A confounding Weekly Market Update with a side of cheese
A reminder about our capacity to overestimate our own capabilities
Oh, and Happy Mothers Day, to mine and all of you moms!
How to Get More Than You Give
Have you ever noticed that when you give to someone whose needs are greater than yours, you actually feel like you have more? Whether it’s a friend in need of a pick-me-up, an investment of your time at a soup kitchen, or a charitable contribution, this change in perspective is one of three major benefits of giving.
The other two? Well, in addition to our perspective being changed, we experience a biological phenomenon, an endorphin rush. Apparently, we’re biologically wired to feel good when we give. Cool, right? And pragmatically, depending on how (or if) you file your tax return, you may also get a rebate on a portion of your financial gifts…check with your CPA.
This week, I recorded a video chat I had with the Executive Director of ONEWORLD Health, Michael O’Neal, specifically for you! We discussed their unique approach to sustainable development work that has enabled them to survive the COVID-19 crisis–and the success they’ve had cultivating relationships with individuals, families, businesses, and even rock bands, like NEEDTOBREATHE, who alone has raised over $2.3 million for the work their doing.
He also explains why we always get more than we give. Click below to watch the nine-minute excerpt, or top off your coffee and click HERE for the full 23-minute interview.
And yes, if you’re jonesing to put that give-more-than-you-get business to the test right now, it’s easy–click HERE and hit the Donate button. And if you choose to give $50 or more, please let me know, because I’d like to send you a personal thank you.
Weekly Market Update:
After two marginally down weeks, the market had another week in the green, almost confoundingly so:
+2.56% DJIA (30 big U.S. companies)
+3.50% S&P (500 big U.S. companies)
+2.71% EFA (~900 international companies)
The biggest question for most people is, “How!? How is the market going up when the economic news is historically bad?” It’s true: Unemployment this week hit 14.7%–the worst since the Great Depression.
Although clearly indeed of a beard trim–sorry, Mom!–I joined Jill Wagner on Cheddar (an online TV channel) to discuss this seemingly odd phenomenon, and to offer some suggestions for the unemployed, under-employed, self-employed, and gainfully-employed in these challenging times:
Is the wind at your back?
I’m not a “cyclist,” but I do love to ride my bike. Last week, I took a new ride, recommended by my good friend–who is a cyclist–that stretched me a bit, and gave me another healthy dose of perspective.
I love to have a destination, so I set my course for the Bulls Island Ferry, a beautiful spot in Awendaw, SC. The total ride was about 20 miles, and on the way there, I felt like an Olympian, averaging about 18 mph. (“Maybe I can call myself a cyclist,” I was beginning to think.
With head held high, I took in the beautiful view, nodded proudly to the couple that I passed on the last mile, and headed homeward. Only then did I realize that I’d had a meaningful tailwind that I’d now be fighting the entire way home. The wind had been at my back.
And as I was thinking about a contingency plan on mile 15–suffering the embarassment of calling my wife and asking her to pick me up in the middle of nowhere, a length to which I thank the Lord I didn’t (quite) have to go–a question hit me like an easterly wind pounding route 17:
How much of whatever I’ve done well in life was actually just thanks to a solid tailwind? Being born into a great family? In the right zip code? Being on the right team? Having selfless friends? Working with amazing people?
How about you? Is it possible that your successes have been aided by a tailwind? If so, who is deserving of thanks? (In addition to your mother, of course!)
How about now? If you feel like a failure at the moment, is it possible you’re just facing the greatest economic headwind of a generation? Who can you ask for help?
Or if you’re fortunate enough to be cranking through this crisis at top speed, who can you help?
And if you think of the people who’ve been your tailwind, I hope you take a moment–why not now?–to thank them.
The spent lungs and sore butt were worth the perspective…and so was the view:
I hope you have a great Mother’s Day and find a healthy tailwind this week!
“The whole financial planning process is wrong,” says George Kinder, widely recognized as one of the chief educators and influencers in the financial planning profession.
But what exactly does he mean, and how does he justify this bold statement?
First, let’s separate the work of financial planning into two different elements–let’s call the first quantitative analysis and the second qualitative analysis.
Quantitative analysis is the more tangible, numerical and objective. It’s where planners tell clients what they need to do and, perhaps, how to do it. For example:
“Your asset allocation should be 65% in stocks and 35% in bonds.”
“You need $1.5 million of 20-year term life insurance.”
“Have your will updated and consider utilizing a pooled family trust.”
The qualitative work of financial planning is the intangible, non-numerical pursuit of uncovering a client’s more subjective values and goals, and, hopefully, attaching recommendations like those above to the client’s motivational core–their why.
If quantitative work is of the mind, qualitative is of the heart.
Qualitative planning often has been dubbed “financial life planning”–or simply “life planning.” It is defined in Michael Kay’s book, The Business of Life, as the process of:
As kids head back to school, adults spanning several generations set their sites on getting their financial house back in order. What are the most important financial planning considerations in three major demographics—Millennials, Generation X and Empty Nesters?
Millennials: First things first – Before making any big financial commitments, like buying a house, figure out what you want life to look like.
Are you in a relationship and looking to “settle down,” or do you highly value freedom and flexibility? If the latter, you shouldn’t be buying a house or committing to a job that is geographically tethered.
If you’re in your twenties, the primary factor that will influence your financial success is how well you establish yourself in a career. Invest in yourself, and that will likely help you invest more money in the future.
Save as much as you can in tax-qualified retirement accounts at this phase of life, because once you get settled down and have kids, your expenses will rise dramatically.
Don’t default to 100% equity portfolios just because you’re young. After getting burned by the market crash of 2008, many Millennials got scared away and didn’t benefit from the subsequent market rise. Your portfolio should likely be predominantly stocks at this age, but consider some fixed income exposure to keep from losing your shirt (and abandoning your strategy) in a downturn.
To really help people, financial planners have to delve into the the feelings and emotions that drive their clients’ financial decisions. One planner explains why that’s so hard.
While most of us financial advisers want to do the best for our clients, we often struggle at the task.
The main problem, as I recently wrote: We don’t know our clients well enough. We may say that a client’s values and goals are important, but most of us don’t adequately explore these more personal (a.k.a. “touchy-feely”) parts of a client’s life.
Why is this?
One reason we avoid deeper discovery with clients: No matter how we’re paid—whether by commissions or fees—most of us don’t get compensated until the financial planning process has neared its end.
There is no shortage of receptacles clamoring for your money each day. No matter how much money you have or make, it could never keep up with all the seemingly urgent invitations to part with it.
Separating true financial priorities from flash impulses is an increasing challenge, even when you’re trying to do the right thing with your moola — like saving for the future, insuring against catastrophic risks and otherwise improving your financial standing. And while every individual and household is in some way unique, the following list of financial priorities for your next available dollar is a reliable guide for most.
Once you’ve spent the money necessary to cover your fixed and variable living expenses (and yes, I realize that’s no easy task for many) consider spending your additional dollars in this order:
The most freeing day of my career was when I sold my golf clubs.
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.
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!
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?
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.
As the Fed has taught us through the money-printing machine cloaked as quantitative easing, the potential supply of U.S. dollars is limitless. Even for most of us individually, we are capable, to varying degrees, of generating and regenerating money through work, investment and happenstance.
Time, however, is a different story.
Thanks to Emily Rooney for permission to feature her artwork
It brings to mind these lyrics: “Where you invest your love, you invest your life,” croons Marcus Mumford in the song “Awake My Soul” on Mumford & Sons’ debut album, “Sigh No More.”
Sure, musicians are notorious for writing lyrics because they sound self-important, or maybe simply because they rhyme, but Mumford has earned a reputation for lyrical brilliance and offers us something deep and meaningful here to apply in our lives and finances.
No matter how much we strive, delegate and engineer for efficiency, there are only 24 hours in each day. We are unable to manufacture more time, and once a moment has passed, it is beyond retrieval.
Of these 24 hours each day, if we assume that we will sleep, work and commute for approximately 17 of them, that leaves us with a measly seven hours to apply ourselves to loftier pursuits. After an hour at the gym, an hour to eat and another hour to decompress with a book or TV show, we’re down to four hours to personally affect those for whom we are presumably working and staying healthy—the people we love.
Our human capacity to love also has its limits.
While not measurable, we can all acknowledge that our capacity to love, in the four hours each day that we have to invest it, is affected by how we’ve invested the other 20 hours. By the “end” of many days, we are just beginning our four hours, and we are already spent. Even if we wanted to, we have nothing left to give—no love left to invest.
I am a chief offender of misallocating my love.
I often allow the four hours I have to give to my wife, Andrea, and two boys, Kieran (10) and Connor (8), to shrink to three, two or even one. In whatever time is allocated, I often serve leftover love, having over-invested myself throughout the day. Then I steal from their time, interrupting it with “important” emails and calls.
I must acknowledge that these are choices I make.
We have the choice to order our loves, to acknowledge the limited nature of time and our own capacity, and to prioritize our work and life.
It’s entirely appropriate to love our work and the people we serve through it. It’s entirely appropriate to love ourselves and to do what is necessary to be physically, fiscally, psychologically and spiritually healthy. It’s entirely appropriate to love our areas of service and civic duty, and to serve well. Therefore, almost paradoxically, it’s entirely appropriate to spend 83 percent of our daily allotment of time in pursuits other than the direct edification of those we love the most.
But what would our lives look like if we engineered our days to make the very most of the other four hours?
Would we have a different job? Would we live in a different house or part of the country? Would we drive a different car? Would we say “no” to some people more and to other people less? Would we invest our time and money differently?
Would you invest your love differently?
I’m excited to be part of a contingent of financial advisors asking these questions of our clients (and ourselves). We don’t believe that the only way to benefit our clients is through their portfolios, and we believe that asset allocation involves more than mere securities.
This isn’t a particularly new concept. Indeed, the second phase of the six-step financial planning process, as articulated in the Certified Financial Planner™ (CFP®) practice standards, is to “determine a client’s personal and financial goals, needs and priorities.” But thought leaders like Rick Kahler, Ted Klontz, Carol Anderson, George Kinder, Carl Richards and Larry Swedroe are persistently nudging the notoriously left-brained financial realm to reconcile with its creative and intuitive side for the benefit of our clients.
With statistics suggesting that as many as 80% of financial planning recommendations are not implemented by clients, it’s officially time to recognize that personal finance is more personal than it is finance.
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.
I 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.
The Behavior Gap
My friend and New York Timescontributor, 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.
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 at @TimMaurer, and if you’d like to receive my weekly post via email, click HERE.
Instead 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.
Fill 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.
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 at @TimMaurer, and if you’d like to receive my weekly post via email, click HERE.