Podcast: Interview with Neil Howe, co-author of The Fourth Turning

Kim talks with Neil Howe, co-author of best-selling book, The Fourth Turning: What the Cycles of History Tell Us about America's Next Rendezvous with Destiny.

MP3 Download: Hi (128k ) | Lo (24k )

Length: approximately 30 minutes

Notes:

0:30     Neil Howe explains the 80 to 100 year generational cycle made up of four turnings
8:17     Neil gives the origin of the saeculum
10:17   Neil discusses the various generations that make up this saeculum (e.g. Silent, Boom, Gen X, Millennial)
12:53      Kim asks Neil if we should be afraid of the crisis period,or fourth turning, predicted by the book
18:00     Kim and Neil discuss Barack Obama and the Lincolnesque leader required for fourth turnings
21:35     What an individual should do to prepare for the fourth turning and how it will be different from anything we have known previously
26:43     Kim asks Neil if he is optimistic about our future
28:20     Neil explains why he believes the Millennials will lead us forward and out of the Fourth Turning

Resources:
Kim's Recommended Reading List
The Fourth Turning by Neil Howe and William Strauss

The Five Biggest Mistakes Investors Make and How to Avoid Them - (Part II)

A month or so ago, I gave a talk to a group of investors. We were standing around waiting for everyone to arrive and I was chatting with one of the attendees. Given the recent market conditions, the subject of our emotional response to events seems to come up a lot. Try as I might, I could not convince him of the role our emotions play in investing. Fortunately for me, several of the guests that night gave me perfect examples of some of the very behaviors I was trying to help him see.

In part one of this article, I gave the first three mistakes. They are: expert bias, stock picking and market timing, and staying in a bad investment until it gets back to break even. In part two, we will cover the other two: buying high and selling low and ignoring probabilities.

The Performance Paradox

During the Q&A session, one of the guests asked my opinion of gold. "I have been hearing a lot of commercials on the radio for gold," he said. "I have all these mutual funds that have lost money. I am planning to sell them and get into gold. What do you think?"

What I think is those commercials remind me of the Sports Illustrated jinx. As soon as a hot team appears on the cover of Sports Illustrated, their winning streak has probably about run its course. Remember when Time Magazine named Jeff Bezos, the CEO of Amazon, Man of the Year in 1999? Should have been a dead give away.

Nowhere else do we flock to something when it is expensive and shun it when it is cheap like we do with our investments. The fear of loss is deeply rooted in our survival instincts, as is the pleasure of gain. This creates what I call the Performance Paradox. The Performance Paradox says the more you chase performance and seek to avoid losses, the farther away you will get from your intended result.

Study after study validates this phenomenon. The most widely quoted is the Quantitative Analysis of Investor Behavior by Dalbar, Inc. The Dalbar study offers conclusive evidence that the average investor underperforms their investment by a wide margin precisely because they sell things when they go down and buy them when they go up.

"I don't believe in market timing," I told the gentleman. "But if I was going to do anything, I would be selling gold and buying stocks, not the other way around."

What to do about it:  Base your investment decisions on how well an investment fits your objectives, your tolerance for risk, and your time horizon - not the performance of the investment. Never change investments unless one of these criteria change, which should, by definition, be very infrequently. Never react to news. By then it is too late.

Fooled by Probabilities

One of the guests was a big proponent of mutual funds. He spent all kinds of time searching for the "best funds". I think anything other than an index fund is a total scam.

"But I pick the good funds."

"The data says it is impossible to pick 'the good funds' because their returns are random."

Our brains are notoriously bad at dealing with randomness and probability. My friend Terry Burnham, in his wonderful book, Mean Markets and Lizard Brains uses two puzzles to illustrate the point. Here's the first puzzle:

Chinese families place a high value on sons, yet the Chinese government exerts extreme pressure to limit family size. Let's assume that that the chance of having a girl is exactly 50%, but every couple stops having babies once they have a son. So some families have one son, some have an older daughter and a son, some two older daughters and a son, and so on. In this scenario, what percentage of Chinese babies will be female?

Here's the second puzzle:

Imagine that you are a doctor and one of your patients asks to take an HIV test. You assure her that the test is unnecessary as only one in a thousand with her age and sexual history is infected. She insists, and sadly the test result indicates viral infection. If the HIV test is 95% accurate, what is the chance that your patient is actually sick?

Apparently, we all get this wrong, at least most of us do - unless you're an actuary like my husband Jim.

Don't believe me? When doctors and staff at the Harvard Medical School were asked the question about the HIV test, the most common answer they gave was a 95% chance that the patient was sick. The correct answer is a less than 2% chance that the patient is sick!

The same is true of the Chinese baby puzzle. As long as the chance of having a baby girl and each pregnancy is exactly 50%, the population will also have 50% girls. This is true regardless of any rule on when to stop having babies. But most people will answer differently.

So our brains are not built to do mathematical calculations. And yet, every investment really boils down to probabilities and mathematically determining the optimal trade-off between quantifiable factors such as risk and return.

Most people see a fund which has beaten the market averages over the last five years and infer from that that the fund manager has some uncanny stock picking skill. However, random chance would suggest that about 3% of all mutual funds, at any given time, should be beating the average over five years. The fact is less than 3% do, which would seem to imply the opposite - that fund managers have an uncanny lack of skill!

What to do about it: Do some reading. Awareness is the best defense against being fooled by randomness and probabilities. I would highly recommend three books: Mean Markets and Lizard Brains by my friend Terry Burnham, Fooled by Randomness by my friend Nassim Taleb, and the investment classic, A Random Walk Down Wall Street, by Dr. Burton Malkiel.

If reading isn't your bag but you really want to learn more about the mistakes investors make and how to avoid them, I encourage those of you in the Dallas Fort Worth area to attend our upcoming Investor Briefing on Tuesday evening, December 9th. It’s called, How to Solve Your Biggest Investment Challenges. I will discuss the recent trends making the job of the Family CFO so difficult and offer up my solutions. You can register on our website at snideradvisors.com.

For those of you who cannot attend the Investor Briefing because of time or distance, we now have an online version as well. You can register here.
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Snider Advisors 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. This article is not a complete discussion of the benefits and risks of the Snider Investment Method®. For a complete discussion, read the Snider Investment Method® Owner's Manual, available by calling 888-6SNIDER. Please read and consider carefully before investing. All investments, including the Snider Investment Method® are subject to risk, including possible loss of principal. Income is objective and not a guarantee. Dollar cost averaging does not guarantee you will not experience capital losses.

The Darned Book - Finally!

Some of you know, the bane of my existence over the last few years  has been getting my book written. It is, in fact, finally done. Hooray! It is being published by Greenleaf Books and will be in bookstores this October.

After much gnashing of teeth, we have finally settled on the title:

How to Be the Family CFO - Four Simple Steps to Putting Your Financial House in Order.

Now we need to decide on a book cover. I was wondering if you would be willing to help? We have three ideas. Each of them is below. Your feedback would be invaluable.

First, I need to set the stage though. There is a placeholder quote at the top of each cover. Some people have assumed (reasonably I might add), from the fake blurb, that the book is specifically targeted at women. It isn't. The book is gender neutral. Please don't let the placeholder text affect your view of the cover. Also, the gray copyright information at the bottom won't be on the book either.

That being said, here is what I would like to know. Without taking a lot of time to think about it, which cover would you be most likely to pick up in a bookstore? For identification purposes, we'll call them the nest egg, the pig and the quarter. With regard to the cover you picked, what do you think appealed to you? What feelings or emotions did it evoke? Is there anything you would change about it?

If you would like to help, please take a moment to give me your ideas in this quick survey:
Click Here to put in your two cents

 

 

 

If you would like to help, please take a moment to give me your ideas in this quick survey:
Click Here to put in your two cents

Thanks, as always for your help. Without you as inspiration, this book would have never been written!

UPDATE (4/9/2008): A couple of people have asked what the results were. The nest egg won hands down. Approximately 55% of you preferred the nest egg. 27% liked the pig and 15% liked the quarter. A lot of you participated in the survey, for which I am really grateful. Whenever I ask for your help, you never fail to come out in force. Thank you!

The book will be in bookstores October 1st. Our friends will definitely be given the opportunity to pre-order autographed copies at a discount. I hope you will give twenty copies each to all your friends and family!  ;-)  No, seriously!  -KIM-

P.S. I closed the survey. The cover, with a few minor tweaks, is a done deal at this point.

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Kim Snider is the President and Founder of Snider Advisors, a SEC Registered Investment Advisor, focused on teaching individual investors a sensible, long-term investment approach focuseed on maximizing cash flow. For more information on Snider Advisors or the Snider Investment Method and how to stop enriching your investment advisors at your expense, please visit snideradvisors.com.

Snider Advisors 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. Call 888-SNIDER7 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, including the Snider Investment Method™ are subject to risk, including possible loss of principal.

A Painful Example of Short-Term Thinking

Two weeks ago, I offered some alternative views on volatility. One of them was from Nassim Taleb, a guest on my radio show and author of the recent best-seller, The Black Swan. A wonderful example from his previous book, Fooled by Randomness, illustrates the cost of focusing on short term results.

 

Imagine you are retired and spend all your time tending to your nest egg. Let's assume two things about your portfolio performance:

 

1. You will earn 15% ; and
2. The variance will be ± 10% from this average.

 

Based on the information above, we know the long-term result of your portfolio will be around 15%; but in any given year, the 10% variance means the return could vary significantly from that number.

 

The question is: How much will the short-term results differ from the long-term certainty?

 

Suppose we use a Monte Carlo simulation to generate 100 possible futures. We would expect the results, when plotted, to resemble a standard bell curve. In other words, 68 of the 100 different possible results would lie within one standard deviation of 15%, or somewhere between 5% and 25%.

 

Moreover, all but 5 sample years would be within two standard deviations, falling somewhere between -5% and 35%. So even though the long-term return is 15%, the variance from year to year can be hefty.

 

Given the normal distribution within our bell curve, we know that the probability of your portfolio being positive, in any given year, is 93%. Those are pretty good odds, wouldn't you say?

 

Now here is where people lose the game. If you focus on the short-term results, randomness has some "unexpected scaling properties" (see the table below). At any given second, your portfolio has basically a 50/50 chance of being positive! If you check it every day, you will be distressed just slightly less than half the time. If you read only your monthly statements, however, you'll be pleasantly surprised two-thirds of the time. And if you calculate your net worth only once a year, you will be tickled pink 19 years out of every 20!

 

 

Now consider this. Psychologists tell us the pain of loss is felt far more than the pleasure of equivalent gains. Given that, imagine the effect your constant monitoring of short term performance will have. You can see how shorter term monitoring causes emotional responses.

 

Of course, if the volatility were higher than 10%, the swings would be even greater. Needless to say, your discomfort is likely to be magnified accordingly, right?

 

What we have here is confusion. When looking at your portfolio, you are confusing signal with noise, something I have written about previously. We can calculate the noise-to-signal ratio of your hypothetical portfolio I described above.

 

According to the chart in Nassim's book, if you check your investments every year, then for every true reading you will encounter 0.7 misleading ones. If you check performance once a month, the noise-to-ratio is 2.32 to 1. And if you are checking streaming real-time quotes by the second, the noise-to-signal is a completely ridiculous 1,796 to 1!

 

Investors must choose their investments based on how well they match up to their lifetime objectives, risk tolerance, time horizon and temperament. Once determined, the investments should not change unless one of these factors change and that shouldn't be very often. To look at a portfolio at any point in time and make a change based on your perception of performance in that moment is death by a thousand cuts.

 

SOURCE:

 

1. Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life by Nassim Nicholas Taleb; second edition (Texere, 2004)

http://www.amazon.com/exec/obidos/ASIN/158799190X/financialsu0f-20

 

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.

 

A different perspective on market volatility

It is my experience that you have three primary concerns when it comes to your investments: 1) Catastrophic losses of principal; 2) Outliving your money; and 3) Knowing who to trust. Am I right? Talking to people just like you, day in and day out, I know those fears are heightened by extreme market movements like we have experienced in the last few weeks. True?

 

So I thought it might be helpful to give you some perspective on market volatility from various authors who I know and respect. From Dr. Benoit Mandelbrot¹, in The (Mis)behavior of Markets:

 

From 1916 to 2003, the daily index movements of the Dow Jones Industrial Average do not spread out on a graph paper like a simple bell curve. The far edges flare too high: too many big changes. Theory suggests that over time, there should be fifty-five days when the Dow moved more than 3.4 percent; in fact there were 1001. Theory predicts six days of index swings of more than 4.5 percent; in fact, there were 366. And index swings of more than 7 percent should come once every 300,000 years; in fact, the twentieth century saw forty-eight such days.

 

In other words, there is far more volatility in the markets than most people realize. That is Dr. Mandelbrot's central message. Rather than ignore this risk, I think we should be teaching people how to make it work to their advantage.

 

From Nassim Nicholas Taleb², in Fooled by Randomness:

 

Prices swing more than the fundamentals they are supposed to reflect, they visibly overreact by being too high at times (when their price overshoots good news and when they go up without any marked reason) and too low at others. The volatility differential between prices and information meant that something about 'rational expectation' did not work.

 

Prices swing more than the underlying fundamentals because markets are driven by the human emotions of fear and greed. Neither of these have anything whatsoever to do with the underlying fundamentals.

 

From Ed Easterling³, in Unexpected Returns:

 

The average annual change for the Dow Jones Industrials Average stock market index, as a simple average, is just over 7% over the past century, 1901-2003... Over that period, what percentage of the years would you expect the annual change would occur in the range of -10% to +10%? Most investors seem to guess a number between 60 to 70 percent—that a clear majority of the years would be inside the range. What range would be required to include half of the years inside that range? … It is very surprising to most investors that the yearly range in the stock market has been inside the range of -10% to +10% only 30 percent of the years. Remarkably, to include half the years inside the range, it has to be expanded to -16% to +16%.

 

Of course, that also means that 50% of the years had a return of greater than ±16%, too. For an investor who looks at his or her portfolio value as a gauge of success, those swings would be pretty scary. For a cash flow investor, who gauges success by the amount of income a portfolio can generate, and by extension, the sort of lifestyle the portfolio can sustain, those market swings should be irrelevant.

 

Finally, there is this from Peter Bernstein⁴ in, Against the Gods: The Remarkable Story of Risk, who I tried to get on the show but could not:

 

For true long-term investors—that small group like Warren Buffet who shut their eyes to short-term fluctuations and that have no doubt that what goes down will come back up—volatility represent opportunity rather than risk, at least to the extent that volatile securities tend to provide higher returns than more placid securities.

 

This is the approach I take to volatility. Volatility is my friend, not the enemy. I love, love, love volatility. To me, the last month or so has been the absolute ideal!

 

How do you feel about big market moves? Do they scare you? Make money for you? Or not affect you at all? Do any of these perspectives surprise you? Do you agree? Disagree? Feel free to leave your thoughts and comments below.

 

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™.

 

 

 

 

1. I first interviewed Dr. Mandelbrot in 2004 for my radio show. Dr. Mandelbrot is the father of fractal geometry, which in case you are interested, is what makes all of today's amazing computer animation so lifelike. He is also the Sterling Professor of Mathematics at Yale and a Fellow Emeritus at IBM's Thomas J. Watson Laboratory.

 

2. I first interviewed Nassim Taleb for my radio show in August, 2004. (You can listen to the podcast of that interview here.) In fact, it was Nassim Taleb who introduced me to both Dr. Mandelbrot and Terry Burnham. In addition to Fooled by Randomness, Nassim Taleb is also the author of the recent best-seller, The Black Swan. Dr. Taleb is a fellow at the Courant Institute of Mathematics of New York University.

 

3. I first interviewed Ed Easterling for my radio show in April, 2005. We have had him on several times since. (You can listen to the podcasts of our interviews here and here.) Ed is the founder of Crestmont Research and Adjunct Professor at SMU's COX School of Management where teaches a graduate course on hedge funds. Ed's website, crestmontresearch.com, is a wealth of wonderful primary research on market cycles.

 

4. Peter Bernstein is the one author on this list who I do not know. I talked to his assistant about getting an interview on my radio show some years ago and he declined. Peter Bernstein is the author of the semimonthly analysis Economics and Portfolio Strategy. He has authored six books on economics and finance. He was the first editor of The Journal of Portfolio Management.

 

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.

Going Away From Blog For Awhile

If you are a regular reader of this blog, you may have noticed that my posts have been getting less and less frequent of late. I am finally getting down to business and am determined to get my book written. I have been saying I was going to do it for several years now. Now it is time to put up or shut up.

 

I have realized I can only write so much in a day and something has to give. So for now, it is going to have to be the blog. I will stop posting to the blog on a regular basis so I can get the book done. That doesn't mean I'll go totally silent but don't be surprised if there are long periods where I don't post.

 

If you don't already use FeedBlitz to get email copies of my posts sent directly to your inbox, now might be a good time to sign up. Just enter your email address in the left sidebar. That way, when I just get the urge to post something, you won't miss it.

 

Also, our podcast will continue to be posted here each week (as well as on iTunes). And our staff will continue to post items of interest specific to the Snider Investment Method™ on the Snider Insider blog.

 

Finally, I strongly encourage you to sign up for our weekly email newsletter, the Kimmuniqué, which will be published every Thursday as normal. That way, you can still get your weekly dose of practical advice for Family CFO's. The Kimmuniqué will also keep you up to date on all our events and everything we have happening at Kim Snider Financial Communications.

 

Finally, I just want to say thanks, in advance, to all my regular readers and commenters. I appreciate your support and patience while I try to get this monkey off my back.

UPDATE (7/28/07)- Ding! Dong! The witch is dead! I am happy to report I finished the first draft of the book last night at 8:47 PM. There is still much work to be done but it feels like the hardest part, for me at least, is done! Hooray! Thanks for your continued patience and support.

 

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.

Not Your Average 12 Year Old

John-Paul Pigéon is not your average twelve year old. He is a Rich Dad, Poor Dad prodigy and the youngest graduate of the Snider Investment Method™ Workshop. John-Paul is an accomplished speaker on the subject of money, speaking to children and adults alike. In fact, he has shared the stage with the legendary Les Brown, which is more than I can say.

 

John-Paul has recently written his first book, called John-Paul's Secret Recipe. It is the story of his first business - a lemonade stand.

 

This tale of two brothers and a classic road-side lemonade stand illustrates in kid-friendly terms the basic underlying principle of finance, cash flow. Though John-Paul does have a secret lemonade ingredient the message of the book extends far beyond a tasty pitcher of ice-cold, refreshing lemonade.

 

An autobiographical account of John-Paul's first entrepreneurial venture designed for audiences ages 3 - 9. The book includes a classic recipe for homemade lemonade and space for children to write in their own recipe and 'secret' ingredient. This book's brightly colored illustrations, fun caricatures and brotherly camaraderie exude wholesome family values.

 

A third of the proceeds from John-Paul's book benefit the Les Brown Out of the Rain Autism Center. This book will teach your children about important financial concepts that will help them succeed in life.

 

It is a delightful book, filled with John-Paul's passion for financial literacy. Purchase copies for the little people in your life directly from John-Paul's website.

 

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.

Investor or speculator?

Many of Wall Street's most colorful metaphors and fables come, unwittingly for most, from a book originally published in 1940 by Fred Schwed, Jr. (yes, that was his real name) called "Where Are the Customers' Yachts?" Schwed went to work on Wall Street in 1920 and wrote one of the enduring investment classics about his time there.

 

The book is simultaneously eye-opening and hilariously funny. More amazing is that many of its truisms seem prophetic given the passage of almost 70 years. It just goes to show, that for all the changes we have experienced in the investment business, not much has changed at all. Everything old becomes new again.

 

One of the passages in this book which caught my attention was the following description of investing in comparison to speculation:

 

Speculation is an effort, probably unsuccessful, to turn a little money into a lot.

 

Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.

 

If you take a thousand dollars down to Wall Street and attempt to run it up to $25,000 in the course of a year, you are speculating. If you take $25,000 down there and attempt to earn a thousand dollars a year with it (by buying twenty-five four-percent bonds) you are investing. The odds against your being successful in the first venture are roughly 25 - 1. The odds against the success of the second venture are "odds on", or something like 1 -25.

 

Jason Zweig correctly points out in the foreword, "Today, as in Schwed's time, people who try to get rich quick still insist on calling themselves 'investors' - even though they are clearly speculators."

 

I believe in investing, not speculation. I believe this because my goal is to make money, not lose it. But the difference between investing and speculation is, as Schwed himself points out, only a matter of degree. So where do you draw the line? How do you define which is which? What criteria do you use?

 

I would love to know your thoughts on the topic. Do you see a difference? Which are you? Did you set out to consciously do one or the other? Let us know by posting 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.

Are You Navigating or Just Drifting?

I've been reading a management book titled "Mastering the Rockefeller Habits" by Verne Harnish. The central premise is how to create alignment in an organization. Alignment can best be understood as everyone and everything working together toward a defined objective.

 

I am attracted to the Rockefeller Habits because Harnish has created a step-by-step system for managing a small but rapidly growing business, much like the Snider Investment Method™ is a complete system for managing your investments. Like the Snider Method, there are steps to be followed, one after the other and always in the same sequence. Also like the Snider Method, there are worksheets to keep up with all the data and metrics to track performance.

 

As I was reading, I quickly realized that my company is suffering from a lack of alignment. We have 20 people all doing stuff every day - stuff that "feels" important, or at the very least urgent. But a lot of it has nothing to do with meeting our most important goals. We are all rowing very hard but all to a different cadence. We are moving, but not in a straight line and not with the efficiency we could be.

 

I also realized that I am much more successful at achieving goals in my personal life than in my business life. Maybe it's because there are fewer people to get onboard. In my personal life, it's just Jim and me. The dogs don't put up much resistance - or provide much input for that matter!

 

Our dream is to build a polo farm in Aiken, SC. Everything we have done for the last few years has been about making that a reality.

 

First, we had a vision that we were absolutely 100% committed to. Next, we had to ensure we had enough money put away to support us for the rest of our lives - not lavishly, but at least comfortably. In other words, take care of retirement savings first, then the dream.

 

Then we had to figure out what it would take to make the dream a reality. The first thing we realized is we needed to build the company into one that was not so dependent on Jim and I on a daily basis. In others words, we had to build a business. We are working on that.

 

It also meant quantifying the dollars involved. How much would it take to build our dream? Yikes! Polo farms don't come cheaply, at least not the one I see in my dreams. So we did that too.

 

Then we started working towards those goals. Everything else has taken a back seat because that is what we decided was most important. When we wanted to take a vacation, we measured it against the dream. "For the cost of a trip to Sun Valley, we could buy an acre of land." or "Is that worth a polo pony?" Sometimes we would say yes. Most of the time we decide it isn't worth it.

 

Our actions are generally in alignment with our goals. As a result, we have bought the land and hope to start moving dirt some time next year.

 

I have always believed that our lives, especially our financial lives, are just micro businesses, to which business principles apply. That is why I always stress the concept of the Family CFO. I believe it is a useful metaphor.

 

I realize now that my personal life is better aligned with my personal goals than my business is with its business goals. We aren't as focused, in the business, as I would like us to be. That is my fault as the CEO and I have determined to fix that.

 

But what can you learn from my experience? Well, here is my question - are YOUR actions aligned with YOUR goals or are you allowing YOURSELF to drift day-to-day without getting any closer to your dreams? And if you are drifting, what do you need to do to take hold of the helm and start creating an intentional course? If you'd like to share, your thoughts and comments are welcome 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.

401(k)s Coming Up Short

I have been preparing for an interview with the authors of the book, Coming Up Short: The Challenge of 401(k) Plans, for my radio show. The premise is 401(k)s (as well as similar 403(b) and SIMPLE plans) have the potential to create enough wealth to support a reasonable retirement. But for the majority of Americans, they don't. Coming Up Short, by Alicia Munnell (Director of the Center for Retirement Research at Boston College) and Anika Sundén, looks at why.

 

What it boils down to is this: 401(k)s have shifted the burden of investing for retirement from the employer to the employee. Unfortunately, most people are not prepared to manage their 401(k)s in order to get maximum benefit from them.

 

Each of us must make five very important decisions related to our 401(k), 403(b) or SIMPLE plan. The implications of each are far-reaching and determine, to a large degree, what sort of standard of living we will enjoy in our retirement years. They are:

 

1. Should I participate in my employer's retirement plan?

2. How much should I contribute?

3. How should I direct the investments?

4. When should I rebalance the portfolio?

5. How do I make the money last for the remainder of my lifetime once I retire?

 

Many of us will make three other decisions that are equally important:

 

1. Should I roll over the money when I leave my employer or take a lump sum distribution?

2. Should I take a loan from my retirement plan?

3. Should I invest in company stock and if so, how much is too much?

 

The data says most of us make mistakes at every single one of these critical junctures. The result is the primary vehicle for retirement savings doesn't even come close to meeting its full potential.

 

Simulations tell us a worker who begins his career making $17,000 and ends it at 62 making $62,650, if she does everything right, should be able to accumulate $353,408 in her 401(k) plan. This simulations is based on a number of assumptions, of course, but not unreasonable ones.

 

Survey results paint a very different picture. The mistakes investors make -- waiting too late to participate, not contributing enough, imprudent investments, not rebalancing, raiding retirement accounts and not taking steps to turn the lump sum into lifetime income -- all contribute to under-funded retirement plans.

 

So my question is this: how many of you think you could do a better job managing your 401(k) than you do now if you had more knowledge? Take our survey and 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.