April 16, 2008
Shelley's Teaching Minute - You Told Me When
I asked you guys to let me know when and why you started preparing for retirement. Your answers were quite interesting -- and perhaps not too surprisingly, many were quite similar. In fact, your answers by and large fell into three specific categories: starting a family, encouragement from your parents and changes in your work.
Let’s look at some of the responses of those who were motivated to start saving when they got married and/or had children.
The answer to the second question is: We started saving as soon as we got married and have never stopped. Our plan then was: 10% tithe, 10% savings, the rest for expenses. We even kept this up in the Navy, which was no easy task. As our finances improved we then adopted this plan: 10% tithe, 20% savings + maximum amount to IRAs, save for named big ticket items expenses with the caveat that when we got a raise it got saved also. The bottom line is that most of our adult lives we have lived on 50% or less than our income (the remainder going to taxes). The motivation for us was very high... We looked around and decided that Social Security would not be there for us (this in the 70s) and accepting responsibility for ourselves, we decided to save.
As regards to starting saving and planning for retirement, my wife and I started when we married. We decided to save her pay and live off my pay. It worked out very well. We put three children through college and are enjoying a comfortable retirement.
Per your question, I started seriously saving at age 25, after graduating from college and getting married. This was not expressly for retirement, but just to start building up cash to invest in real estate (not my home) and some stocks. I always believed I needed to invest to eventually amass any wealth, which I felt was necessary to consider myself successful and comfortable. We didn’t start saving specifically for retirement until about 1980 (age 35) when the IRA was first established. I was immediately attracted to this opportunity to attain a tax deduction for investing, so my wife and I always made the maximum IRA contributions allowed and invested that money in the stock market (mostly mutual funds). Fortunately for us, the market has risen at least 10X since then. Saving and investing was a great choice for us – I was able to retire early, when I wanted to.
I started attempting to build something for retirement right out of college. In fact, some of the earliest ”discussions” my new wife and I had were over my clumsy efforts to get started, e.g. paying premiums on whole life insurance (to amass cash value) and investing in hot tip stocks when we were faced with all the normal expenses of starting a family.
Many of you stated that your parents’ influence was the motivating factor for you.
As for when I started saving and why, it was as soon as I had a job with a 401(k) that had matching funds (in my mid-20’s) because my parents told me I needed to do it. I may not agree with them on everything, but I was smart enough to listen to that. I have made many financial mistakes along the way. I have charged the credit cards up, paid them, charged them up again, and recently paid them off again. I have wasted money trying to “fix” people that don’t really want to be “fixed,” they want to be “saved” (like your friend Tess). Through all of this, I have always contributed to retirement accounts and never touched the money, even for a layoff. No 401(k) loans. No cashing out, even to buy a house. I have read enough on my own over the years to know how detrimental to my future financial health that would be. I thank my lucky stars every day that: a) I was blessed with great parents, and b) I was smart enough to listen to them about money.
I started saving when I was a little kid. My parents taught me early on and brought me to the bank and helped me open a savings account and taught me how to deposit a dollar in there or my holiday gifts. I have done the same with my own daughter. There has never been a time when I haven't saved, although how much has been in the account has varied depending on my life's circumstances. Saving needs to be a part of your life.
This gentleman also credits his father for encouraging him to save for retirement. His email really touched me. I think many of us know someone from his father’s generation who has inspired us to take care of our finances.
I started (saving) when I was 18, not because of any wisdom of my own, but because of the vision and diligence of my father. My father was 17 years old when the stock market crashed in 1929 where he LIVED and struggled throughout the great depression. His story was a classic one where his father made him drop out of high school to try to make some money to help support the family. He eventually went into the Navy and finally got his GED at about the age of 30, never attending college. He struggled most of his adult life trying to get ahead. Being the youngest of 3 children, I never realized growing up just how little money my father had. Somehow, he did manage to save money for his retirement, never borrowing money, and eventually passing away as a very proud man.
With this said, he never wanted me to live the life that he did. My father went with me to file an application for an IRA and an annuity when I turned 18 that I still have today. I truly did not know or appreciate what I was doing at the time, but I just respected my father’s judgment and did what he asked. These are both fixed assets, but considering my father’s conservative nature, this was right in line with what he wanted me to do.
Changes in work seemed to be another commonality for you.
I have been an airline pilot for almost 20 years. I was naïve enough to believe that the pension I was promised would be there for me when I retire. My entire plan for retirement was to count on that pension. A few years ago, through the magic of Chapter 11 bankruptcy, my employer cut my pay by 42% and terminated my pension. What would have been 60% of my final average earnings and a sizeable lump sum was handed over to the Pension Benefit Guarantee Corporation (PBGC) through my company’s bankruptcy. The estimate I got from the PBGC is that I will get $800/month in retirement. Ouch!! And that’s only if the PBGC remains solvent. When I lost my pension, I had to start seriously thinking about how I was going to provide for my retirement. That was the defining moment. The 401(k) and Defined Contribution Plan were limited to mutual funds … or so I thought! I don’t remember exactly what it was that got me to thinking about it, but I started thinking about WHY we were limited to mutual funds in our 401(k) and DC Plan. Was there some kind of “legal” reason why we couldn’t trade individual stocks and options in a 401(k)/defined contribution type plan? I was ultimately able to help get my employer to expand the brokerage link capability we already had in the 401(k) and DC Plan.
I was able to start saving for retirement when I went to work for a company that had a pension plan and offered a 401(k). It was amazing to watch the 401(k) grow over the years with my contribution and my employer’s percentage matching contribution.
Maybe I should add a fourth category. I am not sure what to call this category, but a nice way to say it would be something like, “when I realized I could do it better.”
I didn't figure it out until I was 46 years old. I had invested $2,000.00 in some sort of IRA or insurance annuity every year or two for a few years and managed to save up about $20,000 or so. I was talking to a friend of mine who was a CPA and also oversaw some investments for a few of his customers. I was building houses at the time and was building his home for him. He volunteered to invest my money at no fee for 2 years. He was trading stocks with his broker, who was making 6% on the buy and 6% on the sell back in 1991 for me. His average return on my money for those two years amounted to 8.5%. Now had I been paying him a commission for his work, what would I have had left over? I decided to learn on my own and started reading John Bogle’s books and others. I pulled my money from the broker and invested it in index mutual funds and a brokerage account. All this happened because I didn't think it was in my best interest to let others manage my money.
This response falls into the same category, but as always, my friend Ron has added a little flair.
I started seriously thinking about providing for some kind of eventual retirement about four years ago. I had had a silent heart attack in 1988, and I guess I was just too dumb to know that I was supposed to die. Fast forward to 1998 when I had my first balloon angiogram at Dedman Hospital and was told that if I didn’t quit smoking I would be dead in 6 to 9 months. So, I quit smoking after 42 years of sucking on those foul-smelling packages of poor health. My mental position was that I had fixed things, so, therefore, I was still invincible. The future was still so far away that things would take care of themselves. (In a way, it was almost like déjà vu when I read about your conversation with your friend.) Fast forward again to 2003 when I had to have a two-lead pacemaker put in to keep my heart from stopping at inconvenient times. That’s when my resolve about my invincibility was shaken a bit and I began to think that maybe I should consider doing some planning for the “R” word. I had tried my hand at investing in sure things, winding up broke several times. After deciding to do some planning on my own, I lost my posterior again. Of course, you and Alison have explained ad infinitum why I failed so miserably. (When I attended Kim’s seminar in Frisco, I told her, “I’ve been rich and I’ve been broke. Rich is better.”) Realizing that I was going the wrong direction with my plans to have money to live on in my old age, I got me a …you guessed it … a FINANCIAL PLANNER. My salvation! This guy was going to take care of all my money and put me on the road to easy living for the rest of my life. This was great until I saw that his house was bigger and better than mine. I found out that while I was making 8%, he was making more. I was funding his retirement. I also realized that I would have to wait until I was almost 90 to retire with the comfort level that I want. Now, this was going to be a stretch. I have planned all along to retire on August 28, 2021; the day after I turn 80. Well, I’m not a financial genius, but things weren’t adding up. I started looking for something better.
This gentleman’s response reminds me of why I believe in saving for retirement.
I believe we should not retire from something, but rather retire to something. I started saving when I began earning more than my expenses (mid 30’s). I started saving because I’m a saver. I have made no plans for retirement from my profession, but am always keeping an eye out for something to retire to.
I have always been a diligent saver. Some of us are just wired that way. But I really kicked it into high gear in my late 20’s after a pretty challenging experience lead me to a moment of clarity when I finally understood that I am solely responsible for my financial security. A few years later I married Mr. Seagler and read Smart Couples Finish Rich by David Bach. In Bach’s book he encourages you to define the reason you save as it relates to your personal values. My husband I discussed at length what our savings meant to us and what our long-term/ retirement plans are. We believe our savings is more than just dollars; It is the representation of our accomplishments and our dreams.
As always, I enjoy hearing your opinions and appreciate your feedback.
Shelley Seagler
Kim Snider, Kim Snider Financial Communications 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.
April 03, 2008
Shelley's Teaching Minute - Tell Me When (part 2)
In my last teaching minute, I told you about a conversation I had with my dear friend Tess. Actually, to call it a conversation is a stretch. It started as a conversation, only to quickly devolve into my lecture about saving for retirement. I asked you to give me your feedback on how I should handle the situation. Most of you agreed that I should keep pushing:
I think if I was in your shoes, I would keep trying to get the point across but resist the urge to do so aggressively, after all you do want her to open your cards, letters & email... Also, have other communications without mentioning this subject, showing that you care and accept her... as well as educating her.
With respect to your friend, I can only tell you that I've found the entire topic of money, investing and saving, a difficult topic to discuss even with close friends. I think it is worth your effort to express your concern, but it seems that your friend's response is not unusual and is shared by many, many people.
I keep pushing my friends wither they like it or not also.
Based on other people I know like Tess, I suspect she will not have an epiphany based on your logical arguments about the need to save and invest. You should certainly say your piece, but she will probably ignore it because a behavior change is too difficult and the easier path is to fool herself into thinking that continuing the status quo behavior will really work out in the end. It’s the same thinking that allows people to continue smoking even though they know they should quit. Logical arguments and badgering will not change the mind of a person who is unwilling to make a sacrifice today as a tradeoff for a benefit in the future.
Do not drive Tess crazy. Just tell her you are concerned as a friend about her long term well being, and would like to talk about her planning for retirement when she is ready. Now would be a very good time. It gets harder to have an adequate retirement the longer you put off starting.
This reader agreed I should still compel Tess to prepare for retirement, but had an interesting take on it:
Your concern is well founded. My wife has worked with seniors in the local area for about 16 year now and I have tagged along to assist her at times. Lately, since I retired I have spent more time with seniors and am really disturbed by what I see. Most seniors that we visit are now widowed and live meager lives and have no income or savings other than social security and assistance from the community. There are a couple of things I see wrong here and one is that family could do more to assist to make life more comfortable and secondly there does not appear to be any savings program or financial education in their past lives to help them in later years. I'm sure that maybe they had higher priorities with jobs, families etc; but it does tug at the heart to see this going on. And of course they could have been under the assumption that the government would take care of them as that is what most politicians say every four years. You are correct to share your knowledge with your friend as I'm sure she does not see what is coming down the road.
Many of you addressed the fact that Tess viewed finding a husband as part of her retirement plan:
Perhaps you could point out to Tess that, in today's world, it's fair for husband AND wife to contribute to the financial health of the union. Therefore, she should build her part of what she and a future husband would require (and which would be her retirement, absent a husband). That might help her understand her need to save and grow her personal net worth.
If you can’t find it in yourself to let it be, and the scare tactics have fallen on deaf ears, maybe try a new approach. Encourage her to become more financially savvy because her “future husband” would probably appreciate not having to do it all himself. Her “future husband” would probably be very happy to know that the nest egg he worked so hard to create to “take care of her” would be in good hands should something happen to him.
Tess may know what a blessing the single life can be for some people. It allows her to be totally devoted to her work without the complications of married life. She may relate to the man who remained single and devoted his life to teaching young people. He was asked why he never married. He said the ones that were desirable were unavailable and those that were available were undesirable.
This gentleman also had strong feelings about marriage as a retirement plan. In addition, he reminded me to keep age and everything else, in perspective,
As to your friend, first of all, 70 is not old. You young kids think that anything over forty is on the down side. I’m 66 and just now getting wound up good. Next, if she thinks a husband is a blessing, she’s smoking better stuff than I’ve ever found; chaplain or not. I raised my daughter, mostly by myself, teaching her to never depend on a man for anything. You said your mother taught you the same thing. This philosophy has proven itself true in an overwhelming majority of the time. If you love your friend, and I’m sure you do, you are doing her no favors by not saying anything. Sit down with her over a nice cup of Earl Gray and, using hard figures, methodically show her where she will be in thirty years if she doesn’t do something now. It is an absolute fairy tale that her problems will be solved by finding a husband. I can attest to the fact that just the opposite will probably be the case. She probably has a better chance of winning Lotto which is a very poor retirement plan. Nirvana just ain’t gonna happen. Right now, you shouldn’t be trying to win a popularity contest with her.
But not all of you thought I should keep offering Tess my advice:
Unfortunately, there is probably very little you can do to change her mind. She is still dreaming of a white knight in shining armor who will sweep her off her feet and take care of all of her problems. Trying to convince her otherwise is similar to trying to tell an alcoholic they need to stop drinking: they don’t hear you until their life comes crashing down. She will have to wake up for herself; you can’t do it for her
“The world needs ditch diggers too.” Let her be happy, poor, and supported by us…
However, of all the responses I received, this is the one that really made me think and challenged my current position on the issue.
Having been fortunate enough to have lived 56 years I’ve come to some conclusions about retirement that may not adhere to popular opinion. I believe we should not retire from something, but rather retire to something. Maybe your friend Tess has already figured that out. Maybe in her case she chooses to be involved in a very worthy endeavor right now rather than waiting until later. Surely Tess knew her profession was not particularly lucrative. To me, she sounds OK with that. She is not worried about retirement. She has faith and she believes she will be blessed. Aren’t these good things?
Is Tess living in a run-down, one bedroom apartment, eating cat food, with no heat now? No, probably not. Why is it that when someone doesn’t “get it” that we automatically assume the worst case scenario for them? Maybe when Tess is 70 years old she will still be the hospital chaplain caring for families in times of crisis giving them the hope and faith she obviously possess. Why can’t we be productive in a worthy endeavor for as many years as we are able? What could Tess possibly retire to that would give her more fulfillment than she most likely receives right now?
Thanks to all of you for your advice. I love opening my email to see something from one of you -especially because so many of you are people I now consider friends.
I tend to get a little wound up about certain issues, especially when I think I am right. But I have a confession to make. I think I wasn’t totally forthcoming in my last article. Part of the issue with Tess, is that I think I am envious. She has always been less responsible than I am and seems just as happy. My mom reminded me that eventually, our choices, both good and bad, become very evident. But as much as 40 years from now I want be able to look at Tess and say, “See, I told you so” I also want her to be happy, healthy, and financially secure. I guess the paradox between wanting to be right and wanting our friends to be okay is always a dilemma with those who don’t live their lives exactly like we think we should. Because I do love her, and I just can’t help myself, this is the piece of wisdom I have taken to heart the most and will follow:
I say continue to talk to her, but maybe without the sarcasm.
By the way, my article about Tess had two questions. I also asked when and why you started saving for retirement. I can’t wait to share the answers with you. I planned to do it this week, but received so many responses it would be best to write a separate piece featuring those answers. If you didn’t send an answer last time, and would like to, send me an email. Look for your feedback in my next Teaching Minute.
Shelley Seagler
Kim Snider, Kim Snider Financial Communications 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.
March 20, 2008
Shelley's Teaching Minute - Tell Me When
In January, I told you about the situation with my friend’s coddled daughter who is struggling to find her way in the world. Your feedback was so impressive and helpful I thought I’d ask you for your opinions again.
The situation:
A few nights ago, I was having dinner with a girl who has been my friend since college. Tess is 37 and has never married. She is a hospital chaplain, which is a very worthy, but unfortunately, not a particularly lucrative profession. Tess and I were enjoying our meal and our conversation, when I had to open my big mouth and ask if she has started planning and saving for retirement. Her response was, “No, but I am not worried. It will work itself out.” I replied, with a bit too much sarcasm, “Really? Don’t you think you should do something to make sure it works out?” Her answer was, “Well, I believe I will be blessed with a husband.” I’d love to tell you my response to that, but it isn’t appropriate for print. Needless to say, I don’t think marriage, or the hope of marriage, is a feasible or responsible retirement plan.
I know it isn’t my place to lecture her about finances; it certainly doesn’t make me very popular. But I can’t help myself. I have this vision of a 70 year-old Tess - she is living in a run-down, one bedroom apartment, eating cat food, with no heat, wondering where she went wrong. I can’t help but feel that if I talk enough, maybe I will say something that will help. But sadly, I usually just end up being totally annoying.
What should I do?!? Should I just keep my mouth shut or continue to drive her crazy by sending her articles about the trials of women in retirement? What would you do?
The second line of questioning is a little less obvious, but is something I am dying to know. When did you start saving and planning for retirement? Moreover, why did you start saving? Was there a catalyst or a defining moment that made you realize it should be important?
Please email me your answers, thoughts, and opinions. I will post your feedback in the March 27th edition of Shelley’s Teaching Minute. As always, I love to hear what you have to say and can’t wait to read your responses.
Shelley Seagler
Kim Snider, Kim Snider Financial Communications 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.
March 05, 2008
Shelley's Teaching Minute - Maslow and Retirement
I was first introduced to Maslow’s Hierarchy of Needs in a high school psychology class. When I moved on to college, it came back again. I very clearly remember one of my professors saying, “If a child doesn’t have food in his belly and clothes on his back, you will never be able to successfully teach him.” My experiences led me to believe this to be true. Once we have our basic needs met, we are able to move on to those needs of basic safety and then to our desires for love, esteem and ultimately self-actualization.
In “Maslow Meets Retirement,” Mitch Anthony takes a creative look at Maslow’s Hierarchy of Needs as he applies it to the needs we face as retirement approaches. Anthony writes,
We all eventually will need to engage in a conversation about developing an income stream that lasts as long as we do and that outpaces the inflation that threatens to rot our nest egg, slowly but surely. The best way I know how to accomplish this task is to work Maslow’s hierarchy of needs (with money in mind) and walk through the process of designing an income for life. I have developed a financial rendition of the hierarchy for this purpose.
Anthony replaced Maslow’s terms with following:
Let’s look specifically at how he defines each level.
Survival Income:
Money that I have to have to make ends meet. How much do you need to survive each month? Is it $3,000? Is it $7,000? If you stripped away all the frills and thrills and just paid the bills of survival what is that cost? Most people have never taken the time to address this most basic financial question of all. The money needed to pay for your basic necessities is your survival income.
Safety Income:
“What If?” Income: Money that I must have to meet life’s unexpected turns. What if everything doesn’t work out as you hoped and imagined it would? In life, the one thing we can predict with great assurance is that things will rarely go exactly as planned. We are surrounded by risks—physical, familial, financial, relational and circumstantial.
A leading risk in the minds of those individuals approaching retirement is the risk of outliving their money. Other high-ranking risks are health problems (and paying for health care), investment loss, loss of earned income and financial needs within the family. As much as possible, we want to protect ourselves against catastrophes with our bodies, our money and our “stuff.” The money needed to guard against these risks is your “safety income.”
Freedom Income:
Money to do all of the things that bring enjoyment and fulfillment to my life. What is the exact cost of the activities and indulgences that bring pleasure and relaxation into your life? Some people engage in low-cost relaxation activities (like walking), while others engage in high-priced activities (like walking after a golf ball). Travel, adventure and personal growth/education are also some of the considerations when calculating the amount needed to fund your freedom.
Gift Income:
Money for the people and causes that I care deeply about. As we move up Maslow’s pyramid—securing our survival, safety and freedom—our money can be utilized in the higher calling of bringing blessing to those people and causes we care deeply about. If you are a part of what has been characterized as “the sandwich generation,” you are experiencing financial concerns on both ends of the generational spectrum. Many of us would love to do something for our parents and our children. Many of us also have aspirations to support causes and charities that connect with our heart and purpose. The money needed to pay for these gifts and benevolent annuities is your gifting income.
Dream Income:
Money for the things I’ve always dreamed of being, doing and having. What do you want to be when you grow up? What do you want to do? What do you want to have? These are all part of the financial conversation necessary for paying the bills of self-actualization. For some people, only a career change will bring them to this place. For others it may require part-time involvement in activities more closely aligned with their sense of passion and purpose.
The concept of a hierarchy of importance and need when it comes to our finances isn’t revolutionary. But it is overlooked. For example, last Saturday a gentleman called into Kim’s radio show and shared his situation. He’s 49 and after a series of unfortunate events has no regular savings, no retirement savings and doesn’t own his home. So, he asked Kim how to get started preparing for retirement. Her answer was quite simple, “Save money like a madman.” She let him know he had no room for discretionary purchases and that every dollar he made should either go to bills or saving. This man’s situation is a real-life example of being at the bottom of the Anthony’s retirement hierarchy. Until he can sufficiently cover his survival and safety income needs, he is unable to move up to freedom, gift or dream income.
Thinking of our financial needs this way helps keep our spending, saving and investing in perspective. How often are you tempted to spend your money on the things you want before you take care of what you need? Worse yet, have you created debt to fund your wants and dreams because you can’t afford them on your own?
I think the idea of this hierarchy is a useful tool for appropriate goal setting. What are the things you would like to have or do in the freedom, gift and dream levels? Compare those things to where you land on the hierarchy. Then create a list of action items that will help move you toward those things. I believe that if you focus on building a strong foundation of financial stability you can have and do the things that matter most to you.
Shelley Seagler
SOURCE: Anthony, Mitch. "Maslow Meets Retirement." Financial Advisor, Jan. 2008.
Kim Snider, Kim Snider Financial Communications 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.
February 20, 2008
Shelley's Teaching Minute - Redefining Risk
An unfortunate part of the human condition is to have a special affinity for contradiction. For example, we want to eat everything we want, never work out, and we also want to be thin and healthy. We can’t have both.
This paradox applies to investing, too. We want a risk-free portfolio that also produces a stream of income more than enough to keep up with inflation and our personal needs. But that portfolio doesn’t exist. What if the problem isn’t in our contradictory wants, but rather in our definition of risk? Consider what Roy Diliberto writes in Financial Advisor magazine:
Think of what the average person visualizes when he or she thinks about risk. Webster defines risk as “the chance of injury, damage or loss.” No wonder so many of our clients are “risk adverse.” Who wants to expose their money to such catastrophes? Aren’t we really asking how much fluctuation they are willing to endure in order to reach their goals? We have been using the word “volatility,” but I actually believe that is also too strong a word for what we are trying to convey to our clients.
Fluctuation, however, is exactly what we really mean when we talk about investment risk. And our clients experience fluctuation every day. The weather fluctuates, prices fluctuate, performance of their favorite athletic team fluctuates. They don’t think of fluctuation as being risk. It is simply the way of the world. Would any of them consider shopping to be risky because prices fluctuate from time to time? Most would not. It seems to me that only the most adventurous among us really want to take on risk, so why do we use such a highly charged word when we, in fact, mean something entirely different?
We have discovered that defining risk for what it really is results in our clients making sound investment decisions that significantly improve their chances of reaching their goals. They need to be told that the greatest risk they face is running out of money while they are still alive. Or, not reaching the goals that are very important to them, such as educating their children, traveling, purchasing a vacation home, donating to their favorite charities, etc. Fluctuation may be what they encounter along the way, but the real risk is not earning a large enough return to do the things they want in life.
Diliberto makes an excellent argument that most investors are truly fighting the wrong battle. He gives an example of a client who had been 100% invested in bonds because he didn’t want any “risk” in his portfolio. Diliberto helped the client understand that his real risk was running out of money. In fact, if his client kept his portfolio invested as it was, the client would run out of money in 12 years. Diliberto writes:
We asked him if this (running out of money) was a risk he was willing to take, or would he be willing to accept some fluctuations and years when his portfolio had negative returns in order to significantly increase his chances for success.
Will he fret over fluctuations? Perhaps he will in the short run. But if he calls we will remind him that fluctuation is the price he is paying to avoid the sure risk that he will run out of money in his lifetime.
What would you do in this situation? If you had to make a choice between fluctuations in the value of your portfolio or sustaining your purchasing power for the rest of you life, which one would you choose? The reality is that at some point you will have to make this choice. Unless you have obscene amounts of money or virtually no living expenses, you won’t be able to generate enough income to support even the most minimal standard of living with a portfolio invested in a way that assures it will never have any fluctuations in its net asset value. But the good news is, investing doesn’t have to be a contradiction – not if you can redefine what your real risk is and begin to fight the right dragon. Risk isn’t the temporary movement in the value of your account – that is simply the fluctuation of a random and unpredictable market. True risk is not being able to support and provide for yourself the rest of your life.
Shelley Seagler
SOURCE: Roy Diliberto, "Meauring True Risk," Financial Advisor, Feb. 2008.
Kim Snider, Kim Snider Financial Communications 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.
February 07, 2008
Shelley's Teaching Minute - Too hard to change now?
The most powerful way to change your investment outcome is to change your behavior. There is nothing revolutionary or particularly profound about that idea. After all, it stands true not just for your investing outcomes, but for anything you want to change. For example, the only way to change your diet, relationship, or career outcome is to change your behavior.
If it is so obvious, then why is it so hard to do? In Alan Deutschman’s Change or Die he states that in situations where someone must change their life or face their own death, the odds are 9-to-1 that they won’t change. 9-to-1…..
I don’t think those odds change much when we look at investor behavior. It is well documented in Dalbar’s Quantitative Analysis of Investor Behavior that investors stay trapped in the cycle of buy high, sell low. The study finds that in any rolling 20-year period, the average investor is outperformed by their investment vehicle by a margin of about 7%, simply because of their inability to change their investment behavior.
I’ve spent some time thinking about and researching the reasons it is darn near impossible for us to change. One of the most interesting reasons is that bad behavior is addictive. Pull away from investing and think about gambling. (Those of you who are truly investors realize there is a difference.) Imagine you walk into a casino and the first thing you see is a lady with a cup full of tokens sitting at a slot machine. Two hours later, you walk by again and she is still there, cup in hand at same machine, still playing. You know if she was really making any money her cup would be fuller, but it isn’t. The only significant difference is the number of cigarette butts encircling her chair. So you wonder why the heck she doesn’t give up.
It is intermittent variable reinforcement. If you’ve ever trained a dog, you may know exactly what that is. To train a dog to do a particular behavior, you don’t give him a treat every time he does it. You give him a treat every third time, or fifth time he does it. The pattern doesn’t matter – what matters is that he knows if he does the behavior long enough, he’ll get a treat. By the way, if you train a dog using this technique, it is almost impossible to break the behavior.
Your brain works the same way. You are at the slot machine. You pull the handle and lose, and lose, and lose…and just when you want to give up, you win! The machine goes crazy. Lights flash, buzzers buzz and the sound of money pouring from the machine rings in your ears. Suddenly, dopamine rushes through your system, causing total euphoria and you’re hooked. You keep playing the game. You lose often, but you know if you keep playing long enough, you will inevitably win again. You want/need the rush.
Speculating on investments is the same. The frequency of losses is great, but when you win it feels so good. The wins, no matter how rare they are, suck you in and keep you coming back for more.
A second reason meaningful change is challenging is a reason most are quite familiar with: change is scary. I meet people at every Snider Investment Method workshop who have made a deliberate decision to change their financial future. Some walk into the class with a look of utter terror on their face. I think there are several components to this fear. One is obviously that they worry about who we are and what we are going to do to them. They also worry about logistics – where they will sit and when they will eat. But for too many, the biggest factor is self-doubt. They wonder, “Will I really be able to do this? Am I smart enough? Is it too late for me to learn something new?”
Most of these people leave the workshop feeling excited and confident. Their change of heart isn’t because of something we do; it is because they really can do it. They just had to be willing to try. They had to be willing to make their financial future a bigger priority than their fear.
The catalyst for my interest in the concept of change was the plethora of news stories at the beginning of the year about how to make New Year’s resolutions stick. I couldn’t help but think that if we actually kept our resolutions there would be no need for these stories. But year after year we make the exact same resolutions - the same temporary promises to make our lives better. A month into 2008, I wonder how many of us haven’t just thought about what we want to change, but have actually taken the steps to follow through with the changes in our behavior that can powerfully change our outcomes.
Shelley Seagler
Source: Deutschman, Alan. Change or Die. New York: HarperCollins Publishers Inc., 2007
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.
January 24, 2008
Shelley's Teaching Minute - The Investment Riddle
Remember the old riddle about the child who is rushed to emergency room and needs an operation. The surgeon takes one look at the child and says, “I can’t operate on this boy. He’s my son!” The doctor is not the child’s father. How can the child be the doctor’s son? The answer, of course, is that the doctor is the child’s mother.
I heard this riddle when I was about 6 years old. I remember trying to figure it and being so puzzled. Because I was so young, even after I heard the answer I still had some questions. The essence of any good riddle is that it provokes thought.
A riddle of sorts was created for many of you as the stock market took a pounding this week. The riddle goes something like this:
The Dow drops 465 points. An investor looks in his brokerage account and sees the value of all of the stocks he owns has been demolished. In addition, the overall value of his account has significantly declined. The investor does not panic. He remains emotionless as he continues to invest his money in the stock market. How does he do this?
The answer isn’t voodoo, warm-fuzzies or a bottle of whiskey. The answer is actually in the set-up. He is an investor. He is not a speculator, trader or a gambler.
An investor understands that the stock market is cyclical. It has terrible lows and fantastic highs. And the only way to consistently make money in the market is to always be in it. In other words, to capture the highs, you also have to capture the lows. And the lows can be painful. They can shake your faith and make you feel insane. But they pass.
An investor creates a long-term plan for how he will invest his money and doesn’t change that plan based on market movements, news stories, gut-feelings or panic. He does not overly concern himself with temporary movements in price.
An investor doesn’t give in to social proof. He doesn’t believe that because everyone else is irrationally exuberant or irrationally pessimistic that he should be too. His emotions aren’t based on the reactions of others. He approaches tough situations with logic and reason and isn’t afraid to go against the flow.
When an investor feels himself wanting to give into his fear, he has someone in his life who will say, "Don’t do that!!" And he will remember to stay the course, even though it is challenging. Investing is full of contradictions, but he knows that investing doesn't have to "feel good" to work.
The biggest point is that investors understand that investing isn’t a riddle. It should be based in sound theory and the use of logic, reason and probabilities. It should be a systematic and emotionless process.
Knowing that you are an investor is the thing that keeps you focused on your financial goals, unable to be distracted by the whipping and whirling of market conditions.
Shelley Seagler
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.
January 16, 2008
Shelley's Teaching Minute - The Silver Spoon Effect
A few weeks ago I shared with you the story of Lindsay and Carol. You may recall that Carol was afraid she had ruined her daughter Lindsay by continuing to spoil her, even though Lindsay should be able to take financial responsibility for herself.
I asked for your feedback and opinions on the situation, which I posted in a second article. I have continued to receive several emails and phone calls. Evidently, this is a topic many of you are quite impassioned about. What surprised me is how many of you shared that you or someone very close to you is in a similar situation. Some of your stories really moved me. I am not sure what advice to offer, but I can recommend some good books that discuss the subject of raising financial stable, responsible, healthy children.
One of the best books I’ve read on teaching children about finances is Silver Spoon Kids by Eileen Gallo and Jon Gallo. It specifically addresses the challenges that face affluent parents. One of my favorite passages from the book is as follows:
Affluence isn’t like tobacco; there’s no need for a warning label stating that it is hazardous to a child’s emotional health. It’s mixing affluence with poor or no values that produces problems.
One of my pet peeves is a book that offers wonderful philosophical insight, but no how-to advice. It is like describing delicious meal without offering the recipe. This book actually offers real advice on how to create and implement a plan.
One of the first things the authors state is that parents must create a “money narrative.” They list 12 questions parents should answer to make sure they convey appropriate attitudes about money to their children. I found some the questions challenging to answer, but definitely see the value in having a deeper understanding of the events and values that shape beliefs about money. The questions for the narrative include:
What were the big emotional issues around money in your family when you were growing up?
How do you feel about your own affluence?
What are some of your family stories about money?
After you identify your attitudes and beliefs about money the book offers specific advice for how to talk to your children about money, including, “The Ten Worst Things You Can Say.” By the way, #1 is, “We can’t afford it.” The authors go on to say that if you really can’t afford it this response is totally appropriate, but too often it is a dishonest response and a missed opportunity for teaching your children financial values. I found this list very thought provoking and would bet all of us have either heard or said many of the things on the list.
Gallo and Gallo also offer insight on how to handle allowances, diversity, philanthropy and investing. You may not agree with everything the book states, but it contains more than its fair share of sensible advice. Some of the ideas are quite innovative and very helpful.
I think even if you don’t have children, or you have moved onto grandchildren, you will find this book quite interesting. I particularly enjoyed the chapter on identifying your “Money Personality.”
When I purchased Silver Spoon Kids, amazon.com recommended Choking on the Silver Spoon by Gary W. Buffone. I ordered it and was delighted that I did. The beginning of the book serves as a diagnostic tool. Buffone created several tests to help you determine the current financial attitudes and situations of both you and your children. Some of the test titles are:
Are You Giving Them Things When You Should Be Giving Them Discipline?
Do You Feed Their Greed?
Do You Practice What You Preach?
The tests are interesting and certainly make you think about your actions, but what I really like is that after each test Buffone addresses the specific questions and offers useful tactics to address areas of needed improvement.
The last of the three sections of the book is, “Living the Laws from Cradle to Grave.” Each chapter in this section examines the specific issues relevant to different stages of development. Ages 3 – 55 are covered.
Buffone’s book is chalked full of step by step strategies for raising financially literate and mature children. Unlike, Silver Spoon Kids, this book may not be as interesting or useful to you if you aren’t in the process of raising children. But if you are, this book is certainly an excellent resource.
No discussion of books on responsible financial parenting should ever exclude, The Millionaire Next Door by Thomas J. Stanley and William D. Danko. The entire book is a must read, but the chapter on “Economic Outpatient Care” is fantastic. I wouldn’t be surprised if this chapter is not among the most quoted financial resources. I see it referenced consistently in other books, articles and websites. Regardless of whether you are concerned with how to raise money savvy kids, if you haven’t read this book – do.
Typically, Alison discusses books, but I couldn’t help myself. Through your calls and emails, I learned many of you need guidance maneuvering through the turbulent waters of parenthood. I hope these books become resources to you and to those you know who are fighting the battle to raise good kids.
Shelley Seagler
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.
January 02, 2008
Shelley's Teaching Minute - How Much is Too Much? (Part 2)
Last week’s article hit a hot button with many of you. I am surprised by and appreciative for the number of responses you sent. I’d planned to summarize the responses, but many of them are so well-stated I feel compelled to keep them as they are. Here are the highlights:
If my kids wanted something I made them have some skin in the game. Dependency becomes entitlement.
The greatest gift a parent can give a child is to teach them independence. Lindsay's parents have done her a great injustice.
How do I get to be Lindsay’s poodle?
Anytime somebody cannot be self-sufficient as soon as they are physically able, that person is damaged and if not “ruined”, severely bent. Lindsay needs a big, bitter dose of reality from her parents by being cast out to make it on her own.
Young people must cross that bridge into the working world, develop understanding of the real world with new friends and see real life of people who depend on work to survive.
Yes, her parents are responsible for not teaching Lindsey the most important lessons in life which are responsibility, independence and self reliance. No, it is not too late. It is never too late until someone stops living.
Satisfaction for Lindsay will only come when she finds her true role in society and fills that role with her own ambition and labor.
Duh! What she really needs is to find something she can be passionate about.
In response to your teaching minute, no they did not ruin her; kids are very resilient to a parent's parenting shortcomings. Lindsey's parents just haven't given her a better "vision" of what her life would be like living it on her own vs. having mom and dad take care of her.
We all make mistakes as parents. One of the most difficult tasks is knowing when to make children responsible for their own lives – both financially and emotionally. Parents with the best intentions and biggest hearts often make judgment errors in these areas.
Children need guidance and help when they are young, but they have to be taught that they are responsible and that there is pride in accomplishment.
Trust Lindsay. She needs to experience that SHE can make a difference and it starts with HER OWN LIFE circumstances. It is the only right and fair way to give Lindsay opportunity to learn that she can do it and see that her parents care more for her than they care for themselves.
Unfortunately, I think Carol’s own assessment is correct. IF she (Lindsay) overcomes her current situation she will have more self esteem. If the parents (or some unfortunate husband) continue to support her, she will never be happy.
Kids can adapt to change and like they say, it is never too late to change. On the other hand, she sounds really rich and would make a great trophy wife. I would like to meet her.
She makes a 40 hour a week salary working for daddy but doesn’t work 40 hours because her social life gets in the way? In the real world, people get FIRED for that
If we are not contributing as humans, we will become depressed but paradoxically, if someone else provides it for us, we tend to lack the motivation to do much about it and provide it for ourselves.
Maybe mom and daughter time would be better spent helping her figure out her future.
The parents should provide a time table for the withdrawal of housing, gas, trips etc. to force Lindsey to seek employment. If she does not find a job, she can move back into the parents home (under parents rules...this will not last long).
Lindsay had everything going for her, and has no reason not to succeed on her own. Our kids don't know the meaning of hardship and I believe it's a lesson everyone needs to live to be a self-reliant person.
Yes, they have done a bad job in that they have failed at their most important parenting task, which is to help and encourage their offspring to become as independent as they can reasonably be at every stage of their life. Their task now, difficult as it may be, is to get at it - and gradually (but reasonably quickly) remove the level of financial support which she has become used to.
The key is that kids need to learn that getting what they want takes effort - their effort - and that their parent’s largess has a limit.
I'd say sit her down and explain that the gravy train has reached the station, that they are going to reduce her support to the basics and even that will have a defined time limit before it ends, limit any gifts, and tell her that all else will be up to her. She'll not like it and it will be hard for the parents to watch her struggle, but, it time she'll respond and find a way to get what she wants. With luck, when she does, she'll still be speaking to her parents. Maybe even to thank them for "unruining" her.
See, when you grow up poor you don't have these kinds of problems.
Many of you bragged, rightfully so, about the success you had in teaching your kids to be successful. I found this gentleman’s story quite inspiring,
Both kids graduated from college with business degrees, virtually no debt and around $20,000.00 dollars each in their IRA investment accounts. They are now both well on their way in careers and financial responsibility with no help necessary from parents.
And finally, this response meant so much to me because it is so honest,
I must start out by saying that it is somewhat comforting to find that others are in the same boat as myself.
It continues,
One thing that I feel is true for Carol, as well as myself, is that we don't have the faith in our grown children that we should have. It is time to start weaning them off of the financial crutch and make them more and more responsible for their own situations.
The conclusion most of us came to is that Lindsay isn’t ruined….yet, but unless something changes soon, she will be.
Many of you asked if Lindsay and Carol are real. I assure you, they are. I have known them for many years and care a lot about their family. So let me tell you my perspective. I believe Lindsay’s level of dependence is her choice. She is exceptionally intelligent. She knows she should take control of her own life. But it is so easy to stay exactly where and how she is. I don’t think Lindsay’s parents will make or help her be independent. If change is going to occur, she will have to make it happen. I love Lindsay and my wish is for her to be terribly uncomfortable, for as long as it takes, until she is able to take care of herself.
I also love Carol. I am not a psychologist, but I have watched Dr. Phil, so I guess it is okay for me to say that I believe part of the issue is Carol’s inability to claim her own self-worth. She believes that unless her children “need” her, they won’t “want” her. The cycle of dependence, no matter how much she says she doesn’t like it, guarantees she gets to be a big part of Lindsay’s life.
The stories Lindsay shares with me about her childhood aren’t about what her parents gave her. Her stories are about her mom teaching her to swim, dressing up with her on Halloween and making time to be with her and her friends. If Carol became penniless, Lindsay would still love and champion her. And as much as I believe that, Carol doubts it. Until she is willing to trust Lindsay to love her, no matter what, the money will continue to flow.
Thanks to all of you who sent your thoughts to me. You are always welcome to do so, shelley@kimsnider.com. I love hearing your ideas and opinions.
Shelley Seagler
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.
December 24, 2007
Shelley's Teaching Minute - How Much is Too Much? (Part 1)
“We’ve ruined her,” were exact words that came out of my friend’s mouth. She was speaking about her 23 year old daughter. I bet all parents have felt that way at least once about their own children. Read the following and tell me if you agree with my friend’s conclusion.
I became Lindsay’s* teacher her junior year in high school and I immediately liked her. Lindsay made straight A’s, was passionate about learning and had a genuine concern for her peers. Not only was she blonde, beautiful, and smart, she was head cheerleader and president of the student body. She dated the cutest boy in school, who was, of course, the star quarterback. And to top it off, she drove a red convertible with customized license plates. She had the perfect life, including wealthy parents.
Lindsay introduced me to her mother, Carol*. We quickly became close friends. I found her charming and fun and thought she was a great mom. Neither she nor her husband ever missed one of Lindsay’s events and their adoration and love for Lindsay was very apparent.
After high school graduation, Lindsay attended TCU. As a lot of college freshmen do, she struggled. She missed her friends and found her classes harder than in high school. But after a while, she found her own way and began to excel. Four years later, she graduated, with a double major and honors.
We all assumed Lindsay would find an amazing job and continue to be a superstar. But that isn’t what has happened. After celebrating graduation, she didn’t go out and embark on her career; she simply continued her part-time college job, working for her father. Because she isn’t in school any longer, he pays her a full-time salary. But her social schedule makes it difficult for her to actually work a 40 hour work week.
She lives in the same rental property she lived in during college. It is a lovely 4 bedroom home in a nice neighborhood. Actually, it is one of her parent’s rental properties. She lives there rent free and she gets to keep the rent her two roommates pay. She does make sure the property is clean and well maintained.
Each week Lindsay turns in receipts to her parents so she can be reimbursed for things like dry cleaning, personal care products, cleaning supplies for the house, etc. This drives Carol crazy, but she still continues paying for these things.
Lindsay’s idea of “quality” mom and daughter time is to let Carol take her shopping or to the spa. Carol feels like she is being taken advantage of, but she loves spending time with her daughter even if it means she foots the bill.
Needless to say, her expectations about what gifts she will receive for her Christmas and her birthday are quite high. She has spent her whole life getting expensive jewelry, furniture, clothes and trips and doesn’t understand why she shouldn’t receive these things for each and every special event.
Recently, Lindsay interviewed for a job she was quite excited about. But she was didn’t get it and was really disappointed. She said she was very upfront with them and even let them know she would need most of the summer off to travel. She hasn’t looked for another job since. Carol is very concerned that she never will.
She wants to cut Lindsay off from this degree of financial support and force her out of the nest, but feels it is too late to make such a big change. Her concern isn’t that she will be taking care of Lindsay for the rest of her life. Her fear is that Lindsay won’t ever be happy. Most of her friends are either in graduate school or working their first “real job.” Lindsay feels left behind and it is affecting her self-esteem.
Lindsay was one of the most motivated and driven students I ever had. Now, her motivation and drive are almost totally gone. She is coasting along, hoping for something meaningful to come into her life. She sees her peers excited about where they are heading and can't figure out why she doesn’t feel the same way.
Did Carol and her husband “ruin” Lindsay? Has their continual financial support and indulgence benefited or damaged her? How much financial help is too much and how much isn’t enough?
I really want to know what you think. Email me at shelley@kimsnider.com and tell me your thoughts and opinions. You can specifically address the Lindsay/Carol situation or you can give me your opinions on a broader scale.
Next week, I will report back to you with the feedback I receive. I will also let you know what academic research says about these types of situations. I can’t wait to hear from you!!
Shelley Seagler
*The names have been changed to make sure the “innocent” will still talk to me tomorrow.
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.
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