Kimmunications

All We Can Know About the Stock Market

Way back in the day, when I used to trade for a living, I probably placed nine bets that a stock or index would go down in the near future for every time I placed a short-term bet on up. It is just my natural bias.

 

Some people look at a chart or a news story and their brain reaches for why this should go up. Mine goes instantly to why it will go down.

 

But as an investor, and someone who teaches others to invest, I believe you CANNOT make money betting AGAINST the U.S. stock market.

 

The data is overwhelmingly convincing on this point. Since 1926, the U.S. Stock Market has averaged 10.4% per year (Ibbotson). Bonds, in general, have averaged 5.4% over the same time period, while U.S Treasuries have barely outpaced inflation at 3.7%. Inflation is running at 3% a year. Again, these are all averages.

 

No one would argue that stocks do not carry risk in the short term. That is why, as a trader, with a four hour time horizon, I used to bet on stocks going down all the time - and win (sometimes).

 

Even over longer time horizons, stocks will go down. Looking back over time, it is reasonable to expect a losing year every couple years. More frustrating, even when markets in general are going up, individual stocks of perfectly good companies will go down, often for no apparent reason.

 

Take yesterday for example. The market went up 117 points. 2,110 stocks on the New York Stock Exchange went up and 1,188 went down. 164 stocks made new 52 week highs. An even greater number, 203, made new 52 week lows.

 

But that is the short run. Let's look at the long-run.

 

Over any given five-year period, stocks have lost money just 10% of the time. Stocks have beaten the return of bonds and cash equivalents in about 80% of all rolling five-year periods. And stocks have beaten bonds and cash in all rolling 20-year periods since 1926.

 

To borrow from Nick Murray:

 

"There are really only a few things we can know about the market. Fortunately, they're the only things we ever need to know. (1) It will continue to reflect the growth of the leading companies in the world's most innovative, most flexible, most transparent economy. (2) Because of its inherently higher volatility, it will always provide significantly higher returns than do less volatile asset classes like bonds. (3) No matter what the market is doing today, nor what you fear it may be doing tomorrow, ten years from today you will wish you had invested in it every dollar you could have laid your hands on."

 

SOURCE:

 

1. Nick Murray. "It Goes To Show You Never Can Tell," Financial Advisor, November 2007; p45, 46, 175 <No on-line version available>

 

 

Kim Snider Financial Communications makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Diversification does not protect against market losses in a declining market. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk, including possible loss of principal.

What I know For Sure About Investing … In No Particular Order

1. Your investment objective has nothing to do with account value and everything to do with the lifestyle the sum total of your assets can sustain indefinitely into the future.
2. Investment success is based on performance of the entire portfolio, not the current performance of an asset class or individual security.
3. Older investors are fighting the wrong dragon. When you are living off your portfolio, the enemy is not loss of capital but inflation.
4. Focus on the things that are farther out first. If your investment objectives include retirement, paying for a child's college education and buying a new house, work on the one that is farthest away first.
5. We cannot plan for a future we cannot imagine.
6. Cash flow investing is a better way to invest than capital appreciation investing. I can prove it to you. Come to one of my free classes on cash flow investing.
7. You are uniquely qualified to manage your own investments because you are the only one with no conflict of interest.
8. If you can reduce fees by 2%, by managing your own portfolio, that is the equivalent of a risk-free 2% return. On a risk adjusted basis, that is huge.
9. Investments should be picked based on how well they match up to your investment objectives, risk tolerance, time horizon and temperament - not based on short-term performance.
10. Investing is 10% knowing what to do and 90% doing it.

 

What do you know for sure about investing? Please leave your thoughts in the comment section below. I will expand each of these ideas in the coming weeks.

 

We have taught 3009 investors how to:

 

• Manage their emotions
• Preserve capital
• Get growth even as markets decline
• To generate enough portfolio income to do what they want, when they want, without worrying about market ups and downs.

 

If you have over $25K to invest, register today for our free introductory class on cash-flow investing and the Snider Investment Method™.

 

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

 

The Psychology of Financial Success

The hardest of the three functions of a Family CFO is managing behavior. Have you ever noticed how easy it is to know what you should do with your money but how hard it is to actually do it? That is because our relationship with money is very complex.

 

At one point in my life, I made my living as an options trader. I had three mentors who taught me how to be successful as a trader and what they taught me about trading also influences the way I invest, and how I teach others to invest. In case you are wondering about the distinction, trading and investing are not the same thing. Trading is hunting. Investing is farming.

 

One of those mentors was a psychologist who had spent much of his career working for hedge funds, specialist companies and the proprietary trading desks of the big Wall Street firms counseling their traders on how to control their behavior. This is not dissimilar to the function of a sports psychologist, or others who specialize in the psychology of performance.

 

Of course, today we have the recognized fields of behavioral finance, neuroeconomics and socionomics. But back then, if these areas of study existed, they did not have a name. Still, even today, many people don't realize there are these psychologists working up and down Wall Street and most of you are only vaguely aware of the behavioral aspects of investing.

 

One of the first things my mentor said to me when we started working together was, "What ever issues you have will play themselves out in your trading."

 

My immediate thought was, "What issues? I don't have any issues. What kind of psychobabble is this? I want to learn how to trade, not be psycho-analyzed!" It was years later that I would allow myself to see that he was right. Boy did I have issues!

 

My parents divorced when I was very young. My father had a lot of money. My mother and stepfather - not so much. I had a very contentious relationship with my father for as long as he lived. I desperately wanted his love and approval, but on my terms - not his.

 

The way my father showed love and approval was with his money. The way he showed disapproval was by withholding it. This felt conditional and controlling to me. I resented it and fought him every step of the way - eventually driving him away for good. We did not speak for the last seven years of his life.

 

Somehow, along the way, I got money and love confused. My daddy left. He must not love me. My daddy is unhappy with me. He withholds his money. Money must be love. Since my daddy doesn't love me, I must not be deserving of love. If I am not deserving of love, I must not be deserving of money since money is love.

 

I know it is pretty convoluted looking back at it now. But that is how my little kid brain interpreted it.

 

I am not bragging when I say I am reasonably smart, well-educated, ambitious, entrepreneurial and therefore have always earned a nice living, even before I graduated college. But this created a real problem for me. It meant I always had money. At some points along the way, I had a lot of money.

 

One thing I have learned is that our brain cannot tolerate inconsistency. It needs our outside world to match our inside world. Our subconscious is capable of amazing things to make it so. Looking back at my life, I can see a pattern where every time I achieved financial success, I sabotaged it. So I have this recurring pattern of lots of money, broke, lots of money, broke.

 

From the outside, it was easy to say that each time I hit a broke phase, it was someone else's doing. Some external event beyond my control wiped me out. But once I understood the issues I had around money, and why, I could clearly see that my behavior - some action I took, no matter how easily justified at the time - set me up for failure over and over again because I couldn't tolerate financial success.

 

Weird, huh?

 

So my mentor was right. And a funny thing happened. When I understood it, I could deal with it. Now I know I am deserving of both love and money. I understand they aren't the same thing. As a result, I have plenty of both. This was the big Aha! Whatever you believe you deserve is exactly what you will get.

 

So my question to you is this: If you are not as financially successful as you want to be, what issue do you have that is getting in the way? Like me, you may initially write the question off as a bunch of hocus-pocus. But I promise you, if you are not financially successful, it has nothing to do with how much money you make. I can show you many "Millionaires Next Door" who accumulated small fortunes on relatively modest earnings.

 

No. Financial success has nothing to do with how much you make and everything to do with what is going on inside your head.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Do You Deserve Financial Success?

I saw an article in MarketWatch the other day that made me sad. Apparently, 50% of Americans believe a secure retirement is an impossible dream. It makes me sad because self-defeating beliefs like this become self-fulfilling prophecies. There is absolutely no reason this has to be true.

 

Financial success requires three things: save prodigiously, invest wisely, and act like an entrepreneur. These things are simple. They are doable. But they are obviously not easy or we would all be millionaires.

 

In The Millionaire Next Door, Drs. Thomas Stanley and William Danko tackle the question of quantifying how wealthy you should be. They use a formula I have find quite useful. Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

 

If your net worth is more than twice this number, you are a PAW - a prodigious accumulator of wealth. If it is less than 50% of this number, you are a UAW - an under-accumulator of wealth. In between and you are average - an AAW.

 

At the age of 28, I was wealthy, by any measure. I didn't inherit it. But it was a stroke of luck. The company I worked for went public and my stock options were suddenly worth a lot of money.

 

By age 30, I was dead broke. I didn't have a penny to my name and I was in debt up to my eyeballs. All my cool toys were re-possessed. I sold my beautiful Uptown condo at a terrible loss just to stay out of foreclosure. My credit was wrecked and I had no job.

 

Today I am 43 - I'll turn 44 in May. I am again wealthy - by any measure. This time it wasn't a stroke of luck. It was damn hard work. And let me tell you something. It is far more gratifying than the first time.

 

There are many lessons to be learned in how and why I lost all that money the first go around. I'll save that for another day. I prefer to focus on how I got from the there to here - and to ask you a question? What can you learn from my experience?

 

One of the most useful exercises for me has been finding people who had what I wanted, figuring out what they were doing that got them the result I was after and then doing the same thing. That is why I found the Millionaire Next Door to be so helpful. It gave me a shortcut. I didn't have to talk with all these people, the author's already had.

 

Financial success starts with a simple principle. If you earn $100 and spend $110 you will always be poor - it doesn't matter how much money you earn. If you earn $100 and spend $90, you will always have money - it doesn't matter how little you earn. If you want to be financially successful, you must spend less than you earn.

 

Once you have put away enough to cover emergencies start investing your savings. The key to investing wisely is knowledge. I believe a financial education is one of the best investments you can possibly make.

 

Investing is simply a trade-off between risk and reward. You cannot have one without the other. That law is as fundamental as gravity - it cannot be suspended. The investor who manages that trade-off well will do well. If you don't, you won't. Too much risk or too little can be equally detrimental to achieving financial success. Your job is to always maintain a happy medium.

 

Risk is connected with financial success in many ways. For example, two-thirds of high net worth (HNW) individuals are entrepreneurs even though the self-employed only make up 20% of the workers in America. That makes sense given that profit is the reward for risk. The entrepreneur takes the risk to start and sustain a business and therefore makes more, when successful, than the person who works for someone else and has less risk. But he or she also stands to lose more if the business fails, which it often does.

 

So it is not surprising that HNW individuals are predominantly entrepreneurs. I am an entrepreneur. Not because I set out to make a lot of money but because I have a passion that burns deep inside my core - to make a profound difference in the financial lives of others by teaching them what I had to learn the hard way.

 

But the good news is that you don't have to be an entrepreneur to be financially successful - you just have to act like one. Most successful entrepreneurs I know have three traits you need to be financially successful: 1) commitment and determination; 2) creativity, self-reliance and ability to adapt; and 3) believing in yourself.

 

People sometimes ask me how I went from broke, to not, in thirteen years. I tell them I decided to. That is the truth. Without commitment and determination, you probably won't get there, because financial success requires making hard choices - usually involving giving up what you want now for the opportunity to have something better down the road. That is hard.

 

It is also hard not to get caught up in what everyone else is doing or to not keep doing the same thing over and over and expecting a different result. When the traditional Wall Street offering didn't meet my objectives, I created my own. If what you're doing isn't working, change what you're doing. Otherwise, you shouldn't be surprised when you keep getting what you've always gotten.

 

50% of Americans don't believe they can create a secure retirement. Sadly, they are right. Because if you don't believe you will, then you most assuredly won't.

 

Why do so many people doubt their ability to achieve financial success? Is it because they are afraid to try? Is it because too many people have told them they can't do it? Is it because we are a gluttonous, consumer goods oriented society where no one knows the value of delayed gratification any more? Maybe.

 

I saw an old beater car driving down Stemmons Freeway yesterday with a big screen plasma TV tied in the trunk. The driver was pretty obviously on the lowest rungs of the economic ladder. Yet there he was with his big screen, which by the looks of it, was worth more than the car!

 

But maybe, just maybe, it is because we do not believe we are deserving of financial success. One thing I know for sure, anything I believe I am unworthy of - love, money, respect, friendship - will elude me until I can say with certainty, "I deserve this!". Do you deserve financial success?

 

	TAKEAWAYS:   1. To be financially successful you must: save prodigiously, invest wisely, and act like an entrepreneur.   2. If you don't believe you are capable of financial success, figure out why.

 

So now you know what I think. How about you? What do you think? Feel free to leave your thoughts and comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Hedging Your Biggest Risks

Our paycheck protects us against all sorts of risks. You are in a much better position to absorb unexpected bills, divorce, a lawsuit, or a 20 year bear market when you are employed and have a steady and dependable source of income. A paycheck also hedges you against inflation. Typically, your W-2 income will rise over time to account for increases in the cost of living.

 

Our biggest financial risk is not losing assets or market value. It is losing our source of income.

 

According to a paper published by the Center for Retirement Research, more than three-quarters of adults age 51 to 61 experience financial shocks over a 10-year period. They include widowhood, divorce, job layoffs, health problems, or the onset of frailty among parents or in- laws. Health problems and layoffs dominate at this age. They also find the incidence of financially disruptive events increases with age.

 

If our biggest risk is losing our paycheck and the safety net it provides, how do we hedge or insure against that risk? We build an investment portfolio that generates a steady and consistent source of cash flow. The goal has to be to generate enough inflation-indexed income to replace our W-2 income at a moments notice.

 

Investing solely for growth is not adequate to insure against these risks. Paper gains are fleeting. Assets that must be sold are too risky. And contrary to conventional wisdom, stocks are not a good hedge against inflation.

 

When do we lose our job? When the market and the economy are booming? No. The more likely scenario is we lose our job when the economy is slow, profits are being squeezed and stock prices are down.

 

I believe the job of our portfolio is 1) to protect us against financial risk; and 2) to create wealth. These two things are not mutually exclusive. If you accept my definition of wealth, which is the ability to maintain a certain standard of living indefinitely over time, then wealth is not measured by the number at the top of your statement. It is instead, measured by the inflation-indexed income your portfolio can generate.

 

It is my deeply-held belief that your focus should not be on how to grow your portfolio, although that is certainly a by-product of income re-invested. Rather, "How do I create MORE sustainable, inflation protected income?"

 

What do you think? What is your definition of wealth? Has it changed as you approach retirement? Does the ability to maintain an agreeable standard of living indefinitely without worry make sense to you as a definition of wealth? Leave your thoughts and comments below.

 

SOURCE:

 

1. Richard W. Johnson, Gordon B.T. Mermin, and Cori E. Uccello. "When the Nest Egg Cracks: Financial Consequences of Health Problems, Marital Status Changes, and Job Layoffs at Older Ages" Working Paper Center for Retirement Research at Boston College, Number 18; Released December, 2005.

http://www.bc.edu/centers/crr/papers/wp_2005-18.html

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

 

The Power of a Portfolio Paycheck

Suppose I buy a diversified portfolio of stocks hoping that over time they will increase in value so I can sell them. Until that happens, and I have consummated the sale, I have not made one thin dime. So, until that happens, I sit and I sweat. I worry about interest rates, the dollar, the economy, the possibility of terrorism. Everything is a potential boogie man lurking under the bed. No wonder investors are manic depressive!

 

Suppose instead I buy a portfolio that generates enough passive income, year after year, to pay all my bills and then some. Suddenly, interest rates, the dollar and geo-political events become much less scary because my standard of living is not at risk.

 

Now suppose we experience a ten year bear market. Both portfolios lose 80% of their value. The stock portfolio just sits there - dead - for ten years, doing nothing. It is not contributing to your well-being in any way. In fact, the opposite is true. You stress over it every day.

 

The income portfolio, on the other hand, is also down 80% in value but it continues to generate enough cash flow each year to pay all your bills, and then some. Which do you feel better about? Which causes the most anxiety? Which sounds like the better alternative for you and your family?

 

That is the power of a portfolio paycheck. It is the power to make your portfolio a source of comfort rather than a source of anxiety. It is the power to make work a choice rather than a necessity.

 

If an understanding of any two words has the power to change your financial situation, I believe it is income, or cash flow, versus capital appreciation. Let's recap:

 

Capital appreciation is when you buy something for a dollar and hope it goes up to two dollars so you can sell it to someone else. The difference between what you bought it for and what you sold it for is known as capital appreciation. An example of capital appreciation investing is buying a piece of land in hopes that its value increases and you can sell it to someone else for more.

 

Income, or cash flow investing, is when you buy something for its ability to generate passive cash flow. Income investing is the farmer who buys the land, never intending to sell it, but buys it instead for its ability to grow crop that can then be sold for cash, over and over again.

 

In the past, we have thought of income investing primarily in terms of real estate (rental properties), bonds (coupon payments) and dividend paying stocks. Today, there are many more ways to safely generate portfolio income with much higher yields than what were available in the past.

 

I believe one of the reasons most of us are so stressed out by our investments is we have been taught to focus on capital appreciation investments instead of cash flow investments. Capital appreciation focuses on a number to gauge success - either account value, return percentage, or both. Income investing is focused on outcomes - can I live comfortably without fear of running out of money?

 

One of the biggest disservices done to investors was brain-washing them to believe that income investing is only appropriate as you approach retirement. Income investing is not only appropriate at all ages, I believe it is essential. Here's why:

 

The biggest risk we face is not market risk. Our most valuable asset is what economists call our human capital. It is the skills and abilities we possess, which we trade in the form of employment, for money. Our biggest risk, therefore, is disability, losing our job or obsolescence.

 

There is no law that says you have to spend portfolio income. When you don't need the income, because you have a W-2 paycheck coming in, you re-invest the income to create growth. But what a portfolio paycheck does for you that capital appreciation portfolios can't, is it limits conversion risk.

 

Suppose you lose your job in your company's most recent lay-off. Imagine that you are approaching retirement age and so you are finding it difficult to get a new job because no one wants to invest in training you only to have you retire a few years from now.

 

The good news is that you have saved a lot of money over the years and have invested it in stocks. The bad news is the market recently declined 50%. In order to live off that money, you have to sell those stocks at a depressed price. Once you convert the assets, the lost value can never be regained. That is what I refer to as conversion risk.

 

Now imagine, instead, that you had a portfolio of income producing investments that generated enough income to pay all your bills. While you were working, you just re-invested the income to get growth. Again, you are laid off and again the value of your portfolio is down 50%. But now, there is no need to convert assets and lock in the losses. You simply divert the income to your checking account and use it to pay the bills, leaving the assets intact. This allows you to participate in the long term growth of the stock market, which we all know doesn't go up in a straight line, while at the same time protecting your standard of living.

 

Maybe, at that point, you decide to just hang it up and retire. You hadn't planned on it, but the point is, you can - because a portfolio paycheck makes work a choice, not a necessity. When you decide to finally move on to the next phase of your life, there is no stressful reorganization of your assets. You already have the means in place to harvest the wealth you created. Whether the S&P is at 1000 or 1500 is no longer a consideration when you are deciding when to retire.

 

Modern Portfolio Theory, the most widely accepted investment theory, was developed in the 1950s. These are not the 1950s. Our parents and grandparents lived in a very different world. They went to work for a company and stayed there until they retired and got the gold watch. Today's worker has changed jobs nine times by the age of 32! Pension? Social Security? Do you want to count on that? Not me!

 

Capital appreciation investing may have been appropriate when we our sources of income - both before retirement and after - were guaranteed. But today, if there is one thing I know to be true, there are no guarantees. That means it is up to you to create your source of permanent income that you can count on, both now, and in the future.

 

 

SOURCE:

 

1. Elaine Chou. "Working Together to Build the 21st Century Workforce" Speeches by Secretary Elaine Chou, Department of Labor website; 15 Nov 2002.

http://www.dol.gov/_sec/media/speeches/20021115_GHWB_Library.htm

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

 

You Can't Invest What You Don't Save

I often talk about the four legs of financial success and the six basic tenets, or principles of the Snider Investment Method™. Hopefully, people don't get them confused.

 

I define financial success as having sufficient financial resources that work becomes a personal choice instead of a financial necessity. I believe financial success is built on a foundation made up of:

 

1) a long-term, conservative approach to money

2) prodigious saving

3) prudent and purposeful investing

4) entrepreneurialism

 

The six principles of the Snider Method are:

 

1) you alone are accountable for whatever financial condition you find yourself in

2) emotions are an investor’s worst enemy - our herd instinct causes us to buy when we should be selling and selling when we should buying

3) most investments are designed to make Wall Street rich, not you, and the more people selling them the less likely they are to be a good investment

4) stock picking and market timing do not work -the empirical evidence is overwhelming that stock prices are random and cannot be predicted consistently over time

5) minimizing risk is as important as returns

6) the key to building wealth is making your money work consistently every single day, regardless of market conditions, economic conditions or geo-political events

 

Let's talk about saving - not an area I typically focus a lot of attention on. My primary focus is on #3 - prudent and purposeful investing. But I often get emails like this one:

 

I have very little money and I don't mean a couple of thousands either. I am lost in where to put it to make it grow and work for me. I tried to grow it but that doesn't seem to work, I don't have a greet thumb either. How much do I save to even begin making my money work for me? I know I'm probably helpless but I thought I would give it a shot. Thanks!

 

Most of us get the cart before the horse. The biggest mistakes I see people male are:

 

1) try to invest before they save

2) try to invest without really knowing what they are doing

3) try to turn almost nothing into a little something by taking too much risk, thereby almost guaranteeing their nothing will always be nothing

 

When you have no savings, your focus can't be on investing. The first thing you have to do is put at least six months of expenses in a money market fund. This is not negotiable. You should not be investing to try to create your emergency fund. You save that first!

 

Work on your financial education while you are saving so when you are ready to invest, you know what you are doing. I believe the most important job you will ever hold is that of Family CFO. Make sure you are qualified to do the job.

 

Finally, once you have a little money to invest, don't go out and take a flyer on stocks. Build slowly and focus on managing risk. The biggest fallacy most people fall prey to is that taking a lot of risk guarantees a bigger return. It does not. It guarantees that, if you play long enough, the losses will be bigger and more frequent. Mathematically, a lot of risk guarantees a lower return, not a higher one.

 

Of course, the next thing out of most people's mouth will be, "I can't save. I am living paycheck to paycheck." I know it is hard but it can be done. I've been there and I've done it. So can you.

 

If you are in a position where you have not started socking away money, the best resource I can recommend is David Bach's books, "Automatic Millionaire" and "Start Late - Finish Rich."

 

Warning: I do not agree with David's approach to investing. That is probably no surprise given his former life as a senior vice-president of Morgan Stanley. I'd rather stick pins in my eyes than invest in a mutual fund. But … his advice for saving money, while it seems simplistic, is very doable. You can find the "Automatic Millionaire" on my reading list in Kim's Korner.

 

So I am curious. How many of you have six months of expenses in liquid assets like a savings account or money market? Take the poll below. Also, what constructive advice can you give the person who wrote the email above? Leave your comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

 

Does the Snider Investment Method Buy and Hope?

I discussed what I call the Buy and Hope strategy in a post dated June 28, 2006. A number of people, including some practitioners of the Snider Investment Method™ left comments asking if the Snider Method didn't also rely on buy and hope. I started to post my reply as a comment but it got so long I decided I'd just put it up as its own post. So here goes …The Snider Method doesn't rely on hope - not in my mind - although some people may do it anyway.

 

I don't have to hope because I don't care what the stock price does. The reason I don't care what the stock price does is I am an income investor. I would be willing to hold any of my Snider Investment Method positions forever because I created them for the express purpose of generating a consistent income over very long periods of time regardless of what the stock price of the underlying asset does.

 

Many people can never let go of the concept of account value. That's fine. It's their money so they are entitled to think about it in any way they want.

 

For me, my account value is an irrelevant concept. I never look at it and I never worry about it. I only care about the standard of living my portfolio can sustain. You don't measure standard of living using account value - you measure it by income generated.

 

Every dollar of income that can be generated indefinitely out into the future is the equivalent of a dollar of income I would otherwise have to make by working. My goal is to make sure I always have enough passive income that I never have to work. So long as I am meeting that goal, the only person who cares about my account value is my heirs and I am thinking my heirs care a lot more about my dignity when I am living (and not having to take care of me) than they do about the amount I leave them when I die.

 

Steve mentioned winters in his post. Winter, in the Snider Method, is a month in which a Snider Method position does not generate any income. I know most people view winters as bad. I don't. Winters were designed into the system and are included in our historical return numbers.

 

The problem with winters, of course, is as soon as you enter one you are convinced that spring will never come. That feeling is compounded if you get multiple positions in winter at the same time - which happens. My grandmother used to say, "Nothing is impossible, just highly improbable." Our experience over the years is no matter how bad they feel, positions generally come out of winter within a few months - though not always.

 

Sure, we could have designed the Snider Method so we didn't have winters. That would mean there would be no risk. No risk means low return. There are already no-risk investments - CD's and Treasuries, for example. That wasn't our objective. We are willing to take an acceptable amount of risk for an acceptable amount of return. That is, for us, a standard deviation of 6% for a yield of 13% annually. Others may or may not find this risk reward trade off appealing.

 

You have to remember the Snider Investment Method is not a short term trading strategy. It is a long term investment strategy. It is absolutely self-destructive to look at the returns of any investment from month to month. The question you must ask is, "Is this investment meeting my needs and objectives over my given time horizon?" If your time horizon is a month, six months, or even a year - you are in the wrong vehicle.

 

The Snider Method is nothing more than a substitute for bonds in your portfolio. The Snider Method creates a portfolio of synthetic bonds, which in the aggregate, have about the same level of risk as investment grade corporates and act similarly.

 

My own personal philosophy, as I have stated many times, is that I will not put my own money at risk in stocks. I think they are too risky given that each of us must now create a portfolio capable of sustaining an acceptable standard of living for 30+ years. I have also said, as a result of that philosophy, that my own money is only invested in CD's, money markets, and bonds. I, of course, include the Snider Method in the bond category as it is a terrific alternative to traditional bonds because the yield is so much higher for the same level of risk and shorter duration.

 

Accordingly, my family and I have the vast majority of our investable assets in the Snider Investment Method. Where else would we put it given that approach to investing? That doesn't mean you will, or even should. That is a decision you have to make given your tolerance for risk versus return and your temperament.

 

The best way to understand the liquidity issue, I think, is to think of a Snider Method portfolio as what it is - a portfolio of laddered, synthetic, investment grade corporate bonds. By laddered, I mean the bonds in your portfolio are of varying durations. Some of them "mature" after only a month. Many will go as long as two years. The infamous Checkfree position we dissect in the workshop took four years and one month to close. The average duration of a Snider Method position over time has been about six months - but that is just an average.

 

The Snider method is definitely not highly liquid - any more or less than a traditional bond portfolio is. We tell everyone not to put any money in the Snider Method that you aren't willing to leave the principal invested for at least two years. The income you can scrape off monthly but there is a liquidity risk, which we discuss in great detail in both the workshop and our free information sessions.

 

So to Steve's second post: We agree totally. You should always have an emergency fund of cash set aside for emergencies. Everyone should have six months' to a year's worth of bills set aside in liquid cash equivalents before you invest in anything - your 401(k), stocks, bonds or the Snider Method. Otherwise, you are robbing Peter to pay Paul. To invest before you have your basic needs covered is crazy.

 

So we assume you do have cash reserves. Given that, my personal philosophy is that your nest egg is sacrosanct - no matter what happens, you never, ever, rob your retirement funds to cover short term cash flow problems.

 

If circumstances are such that you have run through your emergency funds then it is my belief you have to do whatever you would do if you had saved nothing for your retirement. In my mind, it is as if the principal in your retirement doesn't exist.

 

I do have one caveat: If your retirement funds are producing income, like the Snider Method does, I think it is not only OK to use the income if you have to, but it is in fact one of the reasons I advocate becoming an income investor early in life. But robbing principal? Never.

 

That is the easy way out and years from now you will wish you hadn't. You can never recover the gift of time in the market. No matter how you rationalize it, you'll never catch back up. You are robbing money from a period in your life when you will have no earning power during a period in which you do - even if that means flipping hamburgers at McDonalds or picking up cans by the side of the road.

 

So, as far as I am concerned it is as if that money doesn't exist. From that mindset, which is the way I look at it, the liquidity issue becomes a non-issue because no matter what, I am never going to cash out a Snider Method position for any reason. Any money Jim and I know we will need later, we plan for and systematically remove from our Snider Method portfolio well in advance of needing it.

 

I think the main point is this - no investment is perfect. All have pros and cons, including the Snider Method. Every investor, and every investor's situation is different. It is up to you to develop a coherent philosophy that makes sense to you. Mine may or may not work for you - it does work well for me but that's because I am me. Your job is to be as rational and realistic about the future as possible, plan accordingly and then employ the tools that make the most sense to you in order to actualize your plan.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

The Dog Whisperer

I have written many times in this blog about the similarities between dieting and investing. Now I have another one for you. Investing is like dog training - yes, dog training!

 

Some of you may recall, back in September, my husband and I rescued a wonderful German Shepherd we named Drittё. Turns out, Dritte and our other German Shepherd, Lexi, have a problem with one another. They both want to be the alpha dog.

 

That rivalry came to a head at Christmas when they almost killed one another. Many hours at the vet and many stitches later, we got them put back together but they obviously had to be separated. We have been living that way ever since. Our house is like War of the Roses. Each dog has their part of the house and yard and never the two shall meet!

 

I have hired dog trainers. I have read books. Nothing seemed to offer the solution. Then I heard about Cesar Millan, the Dog Whisperer, and his show on National Geographic. Interestingly enough, it was a mention on Church of the Customer's blog (one of my favorites) that turned me on to him.

 

Cesar has a simple formula for rehabilitating dogs and training their owners. It goes like this: exercise, discipline, then affection. More accurately, it is 50% exercise, 25% discipline and only then 25% affection. He contends that most Americans just do affection, affection, affection, which is why we have such screwed up dogs. As he says, in Mexico (where he is from) they don't have birthday parties and go to see Santa Claus! Rather, in many parts of the world, they get eaten! I can't even go there.

 

Anyway, Jim and I have been applying Cesar's formula to our pack for several months now. We have been "migrating" as a pack every day. We walk about five miles each morning - sometimes more depending on my schedule. They work for their food by walking and obeying boundaries and limits, which makes us the pack leader instead of one of them. I have seen progress - a lot of progress, in fact. But not so much progress that I would put them together.

 

Last weekend, my husband and I "migrated" (by car this time) up to Oklahoma City to hear Cesar speak at a benefit for the French Bulldog Club of America Rescue League. Whew! And y'all thought I talked a long time! Cesar is even more long winded than I am, but equally passionate on his topic. He has an uncanny ability to mimic both dogs and dog owners. It was definitely worth the trip.

 

It occurred to me this morning, as I was walking in my pack, Cesar and I should write a book together. Not only has walking with my dogs every morning helped them, it has helped me lose 20 pounds and it gives me time to think calmly and clearly each morning - about things that matter - before my day gets too crazy to think straight.

 

Then I realized, the reason it was helping in all these areas is because I have the discipline to do it every single day - seven days a week - rain or shine - whether I feel like it or not.

 

I believe, as I have said before - success - in any endeavor, can be boiled down to one simple phrase: Success - whether in investing, dieting, dog training, relationships, building a company, building a career, whatever - comes down to having the discipline to do the right things every single day.

 

That does not mean you do them when they feel good, when they are convenient, when they are easy, when they make you money not cost you money, when you have time or feel like it. It means doing the right things EVERY day. The key to success is nothing more than discipline.

 

Taking off from Cesar Millan's Formula for Dog Fulfillment - I think success in life is 20% knowing what to do and 80% doing it every single day. The discipline and consistency are far more important than doing it perfectly.

 

I think, with that in mind, one of the most unique aspects of the Snider Investment Method™ is that it gives you a right way to invest that is easy to stick with and follow over long periods of time because it is so rigid and structured with no room for guesswork or intuition. It makes the discipline easier.

That statement assumes, of course, that it is suited to your investment objectives, risk tolerance and temperament in the first place. It would be arrogant to say it is right for everyone. It's not.

 

But I think the magic in the Snider Method, as with most things in life that lead you to success, is the discipline of doing the right thing over and over again until it requires no effort and no thought. It becomes a habit and eventually just a way of life. It's just what you do.

 

So what do you think? How much of a role do you think discipline plays in success? What other factors do you think play a major role in achieving long term success - not just in investing but in general? Leave your thoughts and comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Top Ten Tips for Financial Success

Success, in any endeavor, is guaranteed by simply doing the right things every day. In other words, discipline ensures success. On the other hand, success without discipline is just dumb luck.

 

You can't depend on dumb luck. I had it once. It was fleeting. Now whatever success I have, I own, because it comes from inside. I worked for it.

 

There are no shortcuts either. No one wants to work or wait for success. We all want it now. But it doesn't work that way. Look inside any success story and at its core, you'll find a laser-like focus. Look at anyone who tried to take a shortcut to success and you will find it ultimately blows up in their face.

 

Discipline ensures success. Wow! Just saying those words out loud fill me with energy.

 

This is such a powerful concept because it puts accountability where it rightfully belongs - with the individual. If my life is a mess, I have no one to blame but myself. I wasn't disciplined enough to do what it took to make my life right. If my relationships are bad, shame on me. I obviously didn't make them a priority.

 

But the flipside is, and I truly believe this, that whatever success I want I can have - so long as I am willing to do the work required. How cool is that?

 

So how does this apply to financial success? Simple. I think you have to have the discipline to do the following ten things:

 

 

1. Make your money a priority.
2. Get a financial education.
3. Think for yourself.
4. Focus on outcomes - not numbers.
5. Spend less than you earn.
6. Manage  risk.
7. Manage costs.
8. Buy when others are selling and sell when others are buying.
9. Stay away from trying to time the market or pick stocks.
10. Create a plan and stick with it - there is no such thing as get rich quick!

 

I will expand on each of these in future posts. In the meantime, tell me what you think.

 

Would you add anything to this list? Which of these do you find the hardest and why? What actions do you need to take right away to achieve the financial success you want? Leave your thoughts and comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

I Believe - March 1, 2006

I believe in the principle of accountability. I believe that you and I are solely responsible for whatever financial condition we find ourselves in - no one else - not the government or society, not our broker or CPA, not our parents or spouse. I believe that our current condition is the immediate manifestation of a lifetime of choices. I believe the only way to change your circumstances is to change the choices you are making and the only person who can do that is you.

 

I believe the financial services industry has failed to provide satisfactory solutions to real and pressing problems. Shame on them. I believe the individual investor is equally culpable. Because of our popular ignorance of risk, we have failed to demand solutions. Shame on us!

 

I believe the conventional investment wisdom is a pack of lies being told by a band of thieves. I believe stocks are too risky and bonds don't pay enough. I believe mutual funds and variable annuities only make the people selling them rich - not the people being sold.

 

I am pretty sure you earned whatever money you have. You worked hard for it. You shouldn't turn it over to an insurance company who charges you 7% to get it back. I believe variable annuities in retirement accounts should be a crime. I believe variable annuities sold to the elderly should be a crime punishable by something truly awful - like having a hand cut off - because it is stealing - and stealing from the elderly is awful.

 

I believe in total transparency. I believe you should be able to quantify exactly how much it costs you to invest your money - to the penny. I believe the quickest way to improve your return without one iota of additional risk is to cut your costs. I believe the biggest drag on your performance is your financial advisor. I believe the only person on the face of the earth who has no conflict of interest when it comes to your money is you.

 

I believe that the time to become an income investor is early in life, not late. I believe there is never a time when you can afford to take a lot of investment risk. I believe in managing risk and that by doing so I will guarantee performance. I believe there is no one who can know for sure what their investment time horizon is or when they are going to need that money.

 

I am very clear about what I believe in – and I manage my own investments accordingly. I am guessing that if you are like most people you are worried - and I believe rightly so. I know you are worried about "what if". What if the market crashes? What if inflation jumps? What if I lose my job? What if I lose my spouse or have to take care of a parent? What if I need to tap my nest egg while the market is down? What if I can't accumulate enough to retire? What if I run out of money before I die?

 

My question to you is what are you doing about it? Please leave your thoughts and comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

I Believe - December 7, 2005

I believe work should be a choice – not a necessity. I believe you do your best work when losing your job wouldn't matter. I believe your objective the day you start working should be not having to work. I believe they should tell you that as they hand you your diploma. I believe work is best when it is done for gratification, not for a paycheck. I believe the sole purpose of your investments is to attain financial success. I believe financial success is when you have enough passive income to pay your bills and support a comfortable standard of living.

 

I believe there are four keys to financial success - they are saving, entrepreneurialism, mindset and investing. I believe as a culture we are spending like drunken sailors with no regard for the future. I believe the key to financial success is making money for yourself, not for someone else. I believe that financial success requires discipline and delayed gratification. I believe those of us who are doing the right thing by saving and investing in our future will end up paying for those that aren't - and that sucks. I believe people have to stop assuming that it is someone else's responsibility to take care of them and start taking care of themselves. I believe that no one cares about you or your money as much as you do.

 

I believe nature has played a cruel trick on us and wired our brains backward. I believe the hardest thing about investing is fighting our natural survival instinct which tells us to stick with the herd. I believe there is a world of difference between investor return and investment return. I believe the traditional investment model is nothing more than glorified gambling. I believe hope and luck is a lousy foundation for financial success. I believe the traditional investment model is old, outdated and no longer appropriate. I believe you have to seek out alternatives if you ever hope to be financially free to do what you went when you want. I believe you have to find a formula that works and stick with it.

 

I believe your money should work for you, you shouldn't have to work for money. I believe your money shouldn't benefit your broker more than it does you. I believe your money should pay for your kid's college and your retirement, not your financial planner's. I believe you should be in investments that benefit you, not the person selling them. I believe in transparency. I believe you should know to the penny how much you are paying to invest your money and how much your advisor is making as a result. I believe you should learn how to manage your own money.

 

What do you believe? Post your comment below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

I Believe - December 2, 2005

From one of our recent radio spots:

 

I believe work should be a choice – not a necessity. I believe the financial services industry has sold you a bill of goods that makes them very rich and not you. I believe your investments didn’t do diddly squat for you last year – or the year before that, or the year before that – and that’s a crime. I believe if you don’t do something about it, you’ll be sitting here saying the same thing next year. I believe you are taking far too much risk in your portfolio and that mutual funds and annuities are horrible investments. I believe you can do better. Scratch that – I know you can do better. I’d like to show you how and why.

 

What do you believe? Post your comment below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.