Filed under: personalfinancenewsss.wordpress.com | Tags: Area, Financial, Gray, Sifting, Through
We?re a month into 2009 and I?m already tired of the good vs. evil, black vs. white mentality that seems to dominate every discussion on finances. Can we get into some gray area? Maybe venture into the world of nuance?
While I?ve been hearing some nuance on newscasts and reading some illuminating pieces — like this post from Brian Sullivan?s blog on FoxBusiness.com regarding Wall Street bonuses and an article in last Sunday?s New York Times called ?The Mile-High Office? that talks about the amount of jobs linked to corporate jet maintenance — for the most part the national discussion is dominated by simplistic declarations of right vs. wrong.
Like Sullivan, I am no apologist for Wall Street. But do the majority of Americans really think it?s that cut and dry? Bad guys vs. good guys? What if we looked at this on a much smaller scale?
Back in 2002 I was laid off from a television producing job and I was ill-prepared for it. I quickly accumulated debt and some generous people came through with loans. In the years that followed, I built my life coaching practice, took editing jobs and for a while worked part-time at a ?money? job to get back on my feet.
Every day I was faced with a decision regarding money. I obviously scaled back on personal spending, but when it came to building my business and allocating funds, it wasn?t as easy. Should I take out an expensive ad in a local newspaper? Buy a pricey membership in a networking organization? Where should the marketing money go? I cannot imagine what it would have been like for me back then if those people who lent me money started breathing down my neck over every dollar I spent as I was making those decisions.
At one point, still in debt, I took a trip to Paris. To the average outsider, I?m sure that looked like an incredibly irresponsible move. However, I knew that my boss had rewarded my hard work by letting me use her Paris apartment, that I had earned a free airline ticket with American Express points, and that the money I spent there amounted to what I would have spent on groceries and the subway at home. No souvenirs from Hermes, just a life-altering, much-needed getaway on a very strict budget.
So when I read that Bank of America (BAC) spent more money than I can fathom hosting a Super Bowl event, I didn?t immediately assume it was reckless. I don?t have access to the books at Bank of America nor do I want to, but I don?t find it all that hard to believe that the money it spent at the Super Bowl was part of a bigger plan that takes into consideration employee morale, customer faith and unparalleled exposure that might help it sustain and grow. On the other hand, perhaps it was a horribly reckless thing to do. How could I possibly know without all the details?
What I do know is that years after my layoff I am debt-free and filled with humility. While at the time all this was happening I was angry and even petulant, the truth was I had not prepared for a rainy day and I had to take responsibility for that.
I think right now so many Americans are frustrated by their own need for accountability that they?re lashing out at easy targets. Again, this is not to defend some of the crooks that have helped create this financial mess. But isn?t it true that what might be a luxury to one person feels like a necessity to another?
A few months ago I hired a personal trainer. Almost every single person I mention this to says, ?Wow. You must be doing well.? The implication, of course, is that I must be doing well financially.
Well, I am doing just fine financially. What intrigues me, though, is the assumption that putting some extra focus on health is a luxury. I come from a generation of Italian-Americans who aren?t all that conscious about being physically fit. When my dear mother was my age — 47 — she could barely sustain a walk through the mall. To me, maintaining a high quality of life is worth sacrificing a few dinners out. I know people whose monthly wine budget would pay my health insurance and electric bill combined, but I don?t see that as an indicator of how ?well? they?re doing.
It?s a funny thing, money. We project. We feel fear. We judge. We rail.
What might be more helpful is if we expanded our minds and let in the nuance. Sometimes the brightest color is gray.
Nancy Colasurdo is a practicing life coach and freelance writer. Her Web site is www.nancola.com. Please direct all questions/comments to FOXGamePlan@gmail.com. (more…)
Filed under: Uncategorized | Tags: Financial, from, Hide, Kids, Problems, them, your
Tell the truth: Did you emit an audible moan when you ripped open the third-quarter statement from your 401(k) plan? Have you and your spouse had a heated argument over how much was charged on your joint credit card last month? Do you work in the financial, auto or another industry making headlines about lay offs?
Don?t think you can hide the financial stress from your kids. They?re more perceptive than perhaps we?d like to admit. Regardless of the ages of your children, ?It?s a safe assumption that if you and your spouse are stressing about money, they are picking it up,? says Eric Tyson, author of ?Personal Finance for Dummies.?
While even a teenager probably doesn?t grasp the issues surrounding the current problems with the economy (most adults couldn?t tell you either), the messages they?re getting from the media, at school, and possibly at home are that things are bad, going to get worse, and could last a long time.
A friend of mine who works for a money management firm — and whose job is quite secure — was taken aback recently when his 16-year-old son came home from school one day and asked, ?Dad, are we going to be OK? Will I still be able to go to college??
According to Dr. E. Mark Cummings, professor of psychology at Notre Dame University, ?The most important issue for a child is psychological and emotional security. Can they rely on their community and their family to be there for them? Disruption in the financial markets suggests they might be less safe.?
In other words, it?s not about whether the family ski vacation will have to be cancelled or how many presents they can expect this holiday. ?What disturbs kids is not the dollars and cents of it, but that mom and dad are upset with each other,? says Cummings. ?Children are very sensitive to conflict between dad and mom. If there?s fighting, anger, it will affect a child much more significantly than what?s going on in the outside world.?
Filed under: Uncategorized | Tags: Crisis, Financial, from, learned, lessons, Three, Valuable
NEW YORK–Wow. I bet a lot of you are surprised at the size of the bubble and the size of the burst. Didn’t see that coming, right?
Established businesses, managed and staffed by experienced financial risk management professionals, lending to people who didn’t need to borrow, just like the good old days of “It’s a Wonderful Life.”
I saw the exploding debt load America was carrying as I was meeting and coaching real people on shows like Dr. Phil. But that’s not the point. What to do now is the point.
Going forward, the following investing and money management principles are right on, now more than ever:
1. If you don’t understand it, don’t invest in it
I’m still a value investor. I don’t invest in a stock, I invest in a business. And if I don’t understand the business, I don’t invest in it. Yes, I thought I understood financial companies better than I did. As it turns out, they didn’t understand themselves very well, either.
The lesson remains crystal clear: only invest in businesses you understand. Understand what they buy and sell, and how they make money. But remember this: just because you understand a business doesn’t mean it’s time to buy it.
2. Manage your asset allocations
You’ve heard it a thousand times: the stock market provides better returns over time.
A new study by Javier Estrade, a professor of finance at IESE Business School in Barcelona, examined the stock markets of 15 nations (including the U.S.) over several decades and found that the person who sold and missed out on the best 10 days of those 15 markets ultimately ended up, on average, with a portfolio worth about half what the person had who sat tight.
Still, many people fall victim to a demographic surprise and don’t have much “long term” left. They forgot that stocks are for those with a long-term horizon – meaning 10 years or more. Retiring baby boomers and younger boomers funding college for their offspring are in a bad way now. A double whammy, if stuck with declining investments and declining property values. A triple whammy if also stuck with a big mortgage payment for an oversized house or an oversized lifestyle.
Especially with today’s volatility and sharper up-down, bubble-crash cycles, it’s more important than ever to lock some money away in relatively fixed investments.
We get older faster than we think. Don’t just talk about shifting assets — do it. If you need cash within five years, you shouldn’t be in stocks. If this crisis is making you finally wake up and re-think how much you have in stocks vs. bonds vs. cash, do it. If you have some investments that have held up well or are still ahead compared to your basis, now’s a good time to assess your allocations.
3. Live within your means
Last but not least, no matter how old you are, the signals are clear: it’s time to live within our means. We got drunk on easy credit. Now the binge is over, and we can’t expect to borrow to support an expanded lifestyle forever. And realize that “means” might decrease too – those who adjust fastest to reduced living standards will fare best.
So it’s time to live not just within your means but below your means. That will give you the margin of safety to handle bad times, present and future. Think about it this way: if prosperity returns quickly, you’ll be that much farther ahead.
Margin of safety — another oh-so-true mantra of value investing applied to daily life.
Jennifer Openshaw is co-founder and president of the soon-to-launch WeSeed, a new approach to demystifying the stock market for everyday people, and author of “The Millionaire Zone.” You can reach her at jopenshaw@themillionairezone.com.
Copyright © 2008 MarketWatch, Inc.
Filed under: Uncategorized | Tags: Advisers, Answers, Crisis, Financial, Have, more, questions, than
BOSTON–More than 3,000 financial planners came here this week looking for answers.
They were told about how the economy had gotten so out of whack and what the bailout plan was supposed to do, about investment options to consider for the future and safe havens to run to now, but they never got what they came for.
That’s because the members of the Financial Planning Association who attended the group’s annual convention in Boston still have no clue for the biggest question they are facing: “What do I say to my customers now?”
Consumers working with financial advisers are likely a bit more comfortable than others as the current economic crisis unfolds. That’s not just because those folks have sufficient funds that they can afford to pay someone for financial advice. Nor is it that roughly nine in 10 consumers with a financial plan feel they have a clear financial direction — about 50% higher than for self-directed investors, according to a study released by the FPA and Ameriprise Financial.
It’s because the primary role of a financial planner is not just to manage investments and pick stocks and bonds, but to provide “emotional discipline” — the ability to foment a plan and see it through, regardless of market conditions.
Game changer
Where the do-it-yourself relies entirely on their own judgment — or what they read or watch in the media — the financial-planning customer has their adviser as a backstop, someone who can provide a heads-up to avoid trouble, who they can bounce ideas off and more.
But judging from casual talks with dozens of financial planners last weekend, the advisers are having a tough time right now providing that kind of emotional discipline, largely because they don’t have any comfortable answers. They are proactively contacting clients — and talking the panicky ones down from ledges — but they acknowledge that the standard advice isn’t making people comfortable right now.
That advice boils down to:
1. Stick with the plan, rebalancing if necessary but staying the course as best possible.
2. Cut your spending, as it’s the one piece of the puzzle over which you have total control.
3. Watch your income, and consider how to protect it, whether it comes from salary — where you may need to consider working longer — or from investments, where you may be able to weather market fluctuations so long as your income stays steady.
4. Don’t panic.
No one is going to take solace from that kind of counsel. While investors understood that bad times were possible — that the huge spikes of good years could become the awful daggers of a downturn — they never really expected to have it happen to their own portfolio.
“Everybody wants answers, but there aren’t any sort of answers out there that come with certainty or clarity, that say ‘This is what you should do right now,’” says Terence Odean, a professor at the University of California-Berkeley who studies investor behavior.
“You can make the case that there’s a good chance that the market recovers over time, and you can also make the case that there’s a real chance things turn out very, very badly here,” he adds. “We won’t know what’s right or wrong for a long time.”
Redrawing the map
With that in mind, investors are living in fear of two fundamental risks, the one that comes from staying with the plan, remaining invested and having the market sink lower and not recover for years, versus the risk of pulling everything out now, and then missing out on the recovery.
“In behavioral terms, it’s the risk of omission versus the risk of commission,” says John Nofsinger, a Washington State University professor who studies behavioral finance. “It’s failing to do something versus doing something that turns out wrong, and a lot of people get frozen in between.
“People tend to have a stronger regret feel for the act of commission,” Nofsinger adds. “When they act and it turns out poorly, they feel really bad about it. … That may be driving some people to hold tight right now, it may be driving their inaction.”
One thing that the current economy has clearly forced on financial advisers is a formal change in the definition of “short term.” This is a fairly common flip-flop; when the market is going gangbusters and investors don’t want to sacrifice returns, they tend to keep the short term short, lasting a year or two. That way, they can get more money into the market to take advantage of what seems like a sure thing.
Right now, judging from advisers at FPA, short term is defined as “five years,” meaning that any money you might need for at least the next five years needs to be in safe-haven investments or cash. Intermediate-term — which had been defined as two- to five years during the good times — now seems to be that period from five- to 10 years, and long-term investments are looking forward by a decade or more.
Plenty of advisers believe the market will snap back before then. Citing history, they contend that people will look back and see that they made money while investing in a bear market, but didn’t recognize it until the next bull market arrived.
Said one adviser, who asked to remain nameless because she is waffling on the right thing to say to clients: “They say you make money sometimes by doing what’s uncomfortable. … Well, everything makes my clients uncomfortable right now, whether that is staying in or getting out. I’m telling them that we’re making hard choices knowing what they need to do right now is take the strategy that they think is most likely to pay off for them and their family.
“Either way,” she adds, “it won’t be comfortable, and either way, they’ll have to live with it. So while I advise them to balance the risks and ride it out, I understand if they can’t do it. This is one of those situations where we won’t have any clear answers until we’re looking back at it and calling it history.”
Copyright © 2008 MarketWatch, Inc.
