Sushi Money

     Are you a confused investor?  I think we all are sometimes… in the world of money there is always something to learn.  Economics, finance and investing are not static topics, especially as countless laws change every year.  But if the research we read about is true, then as many as half of all Americans find the investing process confusing.   In this Bankrate article, they ask “is the other half lying?“  It’s an excellent point, and probably close to the truth.  Many people don’t realize how complex investing and retirement planning really is, and take much for granted throughout their lives, all the while paying a lot more than they should in fees and other charges.  No surprise, I’ve done the same thing for years.  

     But at some point, in order to acheive any degree of tangible retirement security, you have to start asking questions and begin finding the right answers.  While so many Americans stay confused, guess who benefits?  The financial services industry.  I’m all for businesses making a fair profit, but not at the expense and ignorance of the people the industry supposedly serves!  And who benefts the least?  Those who least understand what they are getting into.  The segment of the population that is at the lowest socio-economic levels.  Is that surprising? Probably not… education is the key to so much in our society, and it’s no different where investing and saving for retirement is concerned.

“In short, it is the lower- to middle-income segment of American society that is in the greatest need of financial planning and investment advice; however, the industry is simply not equipped to deal with this population of underserved people.”  John Grable, Kansas State University

     It’s really all about financial literacy.  Just as reading, writing and arithmetic are the fundamentals at elementary school for our children, financial literacy can serve as leverage for understanding and succeeding in the areas of investing and retirement planning.  Can you do it alone?  Certainly.  But it’s not a simple proposition.  It requires regular education and research, as well as age-old discipline to stay with it.  Some statistics in the article above cite that only 32 percent of investors in America have an IRA.  And only 23 percent have both an IRA and a 401(k)!   According to the Employee Benefit Research Institute (EBRI), the Individual Retirement Account is the single most popular retirement savings vehicle in the country.  Just not enough people are using one, or starting soon enough if they do!  

     When you look at the numbers, it’s actually somewhat scary.  People are starting to realize that they must take charge of their financial future, but we’re not saving nearly enough.  It takes a great many years to accumulate sufficient retirement assets to provide a self-sustaining source of income.  Social Security is counted on by far too many for far too much.  It will probably be around during our lifetimes, but it’s not going to give someone a secure retirement without something else to supplement the income need.   Take a look at this 2007 chart from the EBRI:

    Nearly half of all U.S. workers report savings and investment totals of less than $25,000. And almost 25% of U.S. workers and retirees report having no savings and investments at all!  Admittedly, many of these numbers are skewed to the younger population with older workers normally having more savings assets.  But it’s still not pretty.  We can do something about that… take charge personally and start planning for our future today.  Read and learn, share knowledge with family or friends, and think about the vision you have for the years ahead.   Besides, what is it really about?  It’s about investing in ourselves.  Getting there financially  just takes knowledge, time and a little discipline along the way.  Of course, if you read this far you’re probably way ahead of the pack.  But as we take a few more steps to secure our retirement, maybe we can help someone else learn to do the same.  

     Why are there so many “doom and gloomers” coming out of the closet?  It seems like the more we read about some problem in the economy, or concern over housing, interest rates, etc. that some supposed “expert” is all over the news explaining themselves, sort of like “I told you so!”  It reminds me of Shakespeare’s Hamlet… “The Lady doth protest too much, me thinks.”   While these experts try to tell us how to protect ourselves in the coming recession, or worse, they seem to have a half-smile on their faces.  Do these people want the U.S. economy to fail?  Do they want people to lose their jobs and have to struggle to find income for their family?  Do they want our political leaders to just give up working to solve problems?  Do they want the U.S. to look like a repentant beggar in the eyes of the world?   I’m really not sure what they want, but so many of them seem to ”bear their cross” with pride in explaining the financial challenges of others.  I don’t disagree that we have a great deal of challenge ahead of us, or many of the reasons we are faced with these challenges today.  But this is where we are!  Why is it necessary to wallow in the morass of doom and gloom?

     By the way, someone please explain to me how I’m going to run out and buy gold or silver coins, hide them in my closet, and then buy groceries or make a mortgage payment with the “gains” I am making on those coins over time?    Or is it simply for long-term investing?   Hmmm… well, if I would have invested in gold in 1982, I would have seen almost a twenty-year decline in my investment.  Only in the last 5 years has gold really grown from year to year.  It may grow more of course… there are always bursts of excess in bull markets, and gold may well be a good investment for the next 3-5 years.  But I guess I just don’t get it.  Sure there are problems within the U.S. economically and otherwise.  There are huge problems around the world economically and otherwise.  But just what do these people want? I’m not saying you shouldn’t own or invest in gold. But I am saying that a doom and gloom mentality is not a wise or helpful strategy over time, and running out to buy gold or silver is not the answer.  Yes, realism is fine, and  hedging your bet is a smart move.  A well diversified portfolio, including some precious metals, across the spectrum of investment risk is probably a good approach.  But I think the best answer lies more with disciplined saving, investing, education, job training, growing a business and doing our best each day.  Helping people learn how to grow and navigate the changing economic tide is a more proactive approach over time.  Maybe that’s just too boring for some people, and doesn’t stir the emotions quite as well.

     Fortunately not every expert is so negative.  Of course you know what they say about opinions, but I think I just prefer a little more positive outlook as we approach the challenges of each day.   

     There’s a new variation of the telephone scam going around.  Maybe I just haven’t heard of it, but this one involves being called at home or on your cell phone by someone pretending to be from your credit card company.  They say they are an offical from Visa or Mastercard, and that your account may be subject to fraudulent activity.  And get this… they already know your credit card number!  What they don’t know is your 3 or 4 digit security code, and that’s what they need.  So they talk and talk, and let you know that you’ll be receiving a credit to your account for $XXX dollars, and all they need is to verify the numbers on the back of your card (front for American Express)…. which of course includes your security code! 

     Some consumers have given all this information to a seemingly official person from Visa or Mastercard… then after having second thoughts they called the credit card company themselves.  Guess what?  The credit card company said that fraud just had occured after the previous call.. and it was a good thing they called to verify.  Visa or Mastercard will promptly close the account and issue you a new card.   Personally, I try never to accept calls from a bank, credit card company or other financial institution.  Instead I will tell them I’ll call them back, and then after finding the official customer service number I will dial it myself.  That way I can verify that the contact or information request is real.

    Have you been the victim of fraud?  Or do you have any lessons learned or advice regarding financial fraud?  The people who do this sort of thing will continue finding ways to fool people into giving away information.  It’s important to be vigilant!

    A long time market sage and renowned investor, Jim Rogers, has proclaimed the U.S. is “undoubtedly in recession” already.  That may come as a surprise to many economists, especially those who monitor hoards of statistics.   It is true however that recessions often begin with little concrete data to show the economic reality that defines it at the time.  Some recessions are only revealed after they’ve been underway for a while.   But is Jim Rogers right?  I respect his views, but somehow he has always appeared quite negative on the U.S. economy.  In fact, I think he has been predicting a U.S. recession on and off again for the last 4-5 years now.  From my reading of his strategies, he’s often a contrarian and sees the world from a “glass half empty” viewpoint.  But he’s an interesting guy, with equally interesting views that I think are important to consider to gain a larger perspective.

   Interestingly, with his contrarian approach, Jim Rogers even believes the Fed should be raising rates instead of cutting them.   His view of the Federal Reserve cutting the funds rate is that it will result in a lower U.S. dollar and lead the nation into a recession. In a September  2007 interview, he stated that by raising interest rates, the Fed would “quell inflation and support the U.S. currency.”   I sure don’t agree with his view of raising rates in light of the housing and credit crisis challenging the nation, but I understand his view and concern for the overall economy.  It’s a tough situation and quite a balancing act for the Federal Reserve which meets in about a week.  Personally I wonder if they will hold off a rate cut this time for precisely that reason- appearing too concerned about the economy while potentially letting inflation rear its head.  I do think rates are on a downward trend, but we may not see a further rate reduction until November or December.   Are we in a recession now?  If not, are we going to be in a recession?   This week former Fed Chairman Alan Greenspan reiterated his view that the possibility is less than 50-50, but acknowledged the U.S. has a long way to go amid the “fear in the credit markets.”  Housing and mortgage issues remain the major themes, especially in terms of the effect on the economy as a whole.  

      Lots of mixed themes in the news this week, overshadowed on the west coast by the horrendous fires from L.A. to San Diego.  For most of us it doesn’t seem quite real, but with over 265,000 people evacuated (over 300,000 500,000 now) and 700+ 1200+ 1300+ homes burned, it really makes you think about what’s important in life.  Most people will rebuild, but there’s got to be a few people asking if it’s worth rebuilding in the same place that fire has already struck twice.  It also brings insurance thoughts to mind.  There is no substitute for a good insurance policy on your home (or car, etc).   What is a “good insurance policy”?  It begins with full replacement value for loss, as well as inflation protection over time.  And yes, that means the policy costs will rise over time as well.  Keep in mind that belongings and property inside the home are often not insured for replacement value. You often have to ask for full replacement value on personal property.  It’s hard to read all the policy jargon sometimes, but your insurance agent should be able to explain every detail of your policy.  That is his/her job, and after a casualty or loss is no time to wonder what kind of coverage you’ve got.  But property is simply that… and can be replaced one way or another.  Human life is precious, and obviously most people escaping from a life-threatening situation are thankful just to be safe.  

     My prayers and thoughts go out to so many people and the firefighters going through so many challenges right now.  We’ll have to find some charitable causes that are set up to help, does anyone know?  I would gladly put a link up on the site and write to help raise money.

     What do you do when it seems like everything is getting more expensive? When I head to the grocery store I keep seeing higher prices and wonder why stuff costs so much more than it used to. Lately I’ve had that experience more frequently than in the past. Inflation may be under control from a macroeconomic perspective, but it’s not under control from the family grocery shopping perspective, or for fuel or electricity costs. Our family is not struggling by any means, but we do try to shop with an eye on prices and work hard not to overspend the budget. Yet when I find prices of grocery items influencing my shopping habits, I’ve got to wonder how other people are doing that really are struggling financially. Energy costs are one of the biggest culprits of course, especially as companies pass their energy costs on to consumers. But what about certain farm subsidies, especially where propping up ethanol production is concerned? Corn and other grain products are in such demand that costs throughout the food processing spectrum are rising like never before. Maybe catching up as well, but it’s still fairly amazing.

     I’ve had these thoughts for some time, but today read an interesting article about how Living Paycheck to Paycheck Gets Harder. Similar themes in the article, especially for shoppers. I found it interesting that Wal-Mart and other larger retailers are seeing the spending gap in the days before and after payday get much larger. In many ways that alone might indicate a recessionary theme for the economy. Once you factor in energy prices and local economic issues such as employment, family economic well-being really becomes a critical issue in many communities. I suspect we’ll see a lot more about this theme in the months ahead, especially with the 2008 election in full-swing. Do you find yourself living paycheck-to-paycheck? I think a lot more families are, and that has me concerned about the next few years.  My nature is to look at things postively, with an optimistic eye for the future.  Heck, I just wrote about Appreciating the Economy a couple weeks ago, but I think it’s also important to look at the challenges people do face.

     Back in the early ’90’s, the first President Bush lost the election because people were very concerned about the economy, and it seemed like the political leaders were out of touch with the reality that many working families face. Remember “It’s the economy, stupid?” Seems to me like we are seeing the same thing happen all over again. Certainly there are many aspects of the U.S. economy that are strong and vibrant. But to ignore the challenges and realities that many families do face is akin to turning away from the problem. Those political leaders who do address these issues in a constructive and positive manner will be heard much more clearly from the voters. Personally, I don’t care about the political aspects other than to see that we are helping Americans to grow and succeed in their lives. There are so many ways to foster financial literacy and economic well-being in the nation. Education is vitally important, as are employment and tax incentives for businesses, homeowners and families with children.

     More importantly however, there’s a lot we can do locally to help others. Just taking a few food items to a local charity or food pantry can really make a difference, especially as we head towards winter and the holiday season. Hopefully we won’t see a recession in the U.S., but whether we do or don’t, there will still be a lot of families that need our help.

     Last Friday was one of those Ouch! kind of days… with the Dow losing over 360 points right about on the anniversay of Black Monday in 1987.   Not that 2007 had anything to do with 1987… just a coincidence to be sure.  Yesterday had more to do with rising economic concerns, options expiration and the last quarter of the calendar year.  But do you remember that day in 1987?   I talked about it here when looking at emotions and investing.  For a day that many still talk about 20 years later, guess what?  The market went up over the next few months and many people did okay that year.  Who really got hurt?  Mostly it was traders who had a lot of money as risk, as well as margin players.  When you borrow a ton of money…. in other words, use leverage to prop up your investments, then when the market volatility becomes extreme you risk losing a lot of money, and yes- making a lot of money.  But it’s not a practical approach to investing for most of us. 

     Personally, I want to be positioned so that I don’t really care over the long-term.  Of course I care how my investments are doing over time, but really- I don’t want to worry about my portfolio.  After putting your asset allocation together in a well diversified portfolio, you just let it do its thing.  If it really bothers you when the market goes down, then that should tell you something’s out of whack.  Either you are investing too much contrary to your personal level of risk tolerance, or maybe you’re worrying unnecessarily for no rational reason and watching the market too closely.  It’s easy to do, but over time it helps to gain a sense of detachment and maintain that “big picture” for where you want to be in 10-20 years.  

     If you’re close to retirement, it’s very important to maintain a diversified portfolio.  For so many of us, we invest in what we think we know.  A lot of folks invest in company stock in their 401(k).  Not a bad idea at first, and many companies require it.  But if you’re close to retirement, why put all your eggs in one basket?  A lot of folks at Enron really got hurt doing that. 

     What does diversification do for you?  It simply reduces the risk of investing, especially for individual stocks.  Mutual funds offer inherent diversification at a lower cost over time.   True diversificiation involves measuring correlation coefficients and host of other stuff.  But essentially, you want to invest in securities whose returns don’t move in a similar fashion over time.    There’s a ton of info on the web about building a diversified portfolio.  If you’re concerned, talk with your planner or advisor and review your situation.  

     I think it’s kind of like our garden in the spring.  We plant many different seeds and ”starts” for a season of growth for a bunch of different vegetables and flowers.  We don’t plant just one seed or little plant because there’s a lot of risk out there.  Temperature, water, insects, soil fertility, bunny rabbits!  If we plant just one of something we risk that it may not grow very well or produced the return we hope for.  At worst case the little plant withers and dies.  

Investing is a lot like a garden… you want a bunch of stuff in there early in the season to have a robust mix later at harvest time.  

     And for our investments, the growing season is not measured in months, but rather years!   Every time we save and invest, we are planting seeds for a new season of growth.  We may harvest a little of that at a time in future years, but unlike the plants in our backyard, with time and compounding, our investment garden will just keep growing and growing.

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Sometimes we make some strange decisions involving money.  At the time we often think we are buying something we really need.  Usually it is something we really want for a host of reasons we may never understand.  And so often we haven’t really thought it through.   Last night I was watching the news and they were interviewing a woman who drove across three states with two young children to attend a Hannah Montana concert!  That wasn’t the amazing part- she made that trip without any tickets, prepared to pay whatever was necessary to get in.  And pay she did, giving a scalper over $450 per ticket to watch the concert.  She was quoted saying, “My husband thinks I’m crazy.”   Hmmm… really?   To each their own of course, and I hope that concert was a memorable outing for all of them. 

     I’ve made my own share of extravagant spending only to wonder later why I felt so strongly about something.  For example, I have a really nice shotgun in my closet that I purchased over 15 years ago for hunting.  It’s very nice, but guess what?  I’ve never used it.  I rationalize that now it’s probably a collector’s item, but looking back- I would have been far better off investing the money I spent on it.  And I can find a lot of similar themes just by looking around the house.  Why do we own some of these things!?   So often I think it’s about satifying some need within ourselves for very different reasons altogether.

Laura Rowly on Yahoo Finance has written a great article called This is Your Brain on Money. In the article she cites the work of author Jason Zweig who has written a new book called Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich.   I haven’t read it yet, but it sounds pretty good.  Author Zweig takes a close look at why we make foolish financial decisions, and strategies we can use to avoid them and improve our financial lives.  It sounds like some of his key advice has to do with the basics, but also the essentials:  Put a good financial plan in place, and stick to it!  Easier said than done over the long-term, but it’s something we must work at to achieve our financial goals. 

     Foolish decision making isn’t always about money of course.  There is a host of research into Decision Science, or why we make decisions that are not always in our best interest, or that of the organizations we work with.   Most of this has to do with psychology and how our emotions can govern our lives.  This knowledge helps me to understand financial decision-making, especially where poor financial decisions result in too much debt, and too little financial security over the long term.  I read an article recently by Ron Blue on The Road to Debt that makes a lot of sense.  In the article  he cites four main factors as causes for problem debt:

1.  A lack of Discipline
2.  A lack of Contentment
3.  A search for Security
4.  A search for Significance

     These themes also have a lot to do with our habits, our emotions and the psychology involved in money decisions.  Does it help me to understand the personal psychology of using money, even in a spiritual sense?  Yes, I think it does.  Mostly because it helps me to reflect more about why I am going to make a certain decision, or why I want to buy a stock or some other item for the home.  I then ask myself, what meaning or need will it fulfill in my life?  Why do I need to purchase it now?  

    I know I must work at staying disciplined in meeting my financial goals.  That is more than a daily thing- to achieve success over the long term I need discipline that lasts.   And that’s where Contentment, Security and Significance come in…  We can try to explore what is important to us individually and within our family and community.  We can try to do things that bring joy and growth personally, and to others over the long term.  We can focus on achieving positive outcomes, and what Curt Rosengren calls Skewing the Bell Curve of Potential Results.   For me, it all serves as a sort of self-improvement project for one’s entire life.  And heck, if it helps us improve our financial futures, then that’s good enough for me.  I often wonder what foolish money decisions other people have made.  But do you know what my most foolish money decision was?  Not starting to save and invest sooner.  The simple measure of time does amazing things for a portfolio. 

     Wow, I almost missed it- the first official U.S. Baby Boomer filed for social security yesterday, October 15th, 2007.  That’s actually pretty amazing, considering that the Baby Boom was about 18 years long.  In essence it marks the official beginning of the retirement years for the Boomers.  So now all you non-Boomer’s get to hear about this ad nauseum over the next year or two.   But that’s okay, the way I figure it- all the Boomers are going to make things easier for the rest of us down the road.  That is if they don’t break the ‘ole U.S. bank for Social Security, Medicare and all the other stuff first!   But wait a minute… I’m one of them ‘thar Boomers!  Well, I’m pretty near that last blue line anyway. Take a look at this birth chart showing the boom:

     The demographics of aging are amazing, especially considering that up to 10,000 Baby Boomers will be filing for Social Security each day for the next 18-20 years!   The impact of this older generation will be pretty widespread, especially on the U.S. health care system, service industries and the generational transfer of wealth that will take place.  There’s a lot of untapped market potential out there to service the needs of these folks- and the youngest Boomers are still in their early to mid-forties.  The market should do pretty well over the next several decades, because all this money has to go somewhere.  It’s not going to sit in bank savings accounts and bond funds because they don’t provide the growth that most of us will need.   Somehow I think Baby Boomer investing will take on new meaning in the years ahead.

It’s often been said that experience is the best teacher, and that’s a very appropriate axiom when it comes to managing money. Jonathan Hoenig from SmartMoney.com might agree in his article Trading, Not TV, Offers Best Investing Lessons. He makes an excellent point in terms of investing in the market and how learning to trade stocks can provide an understanding that we won’t get anywhere else. It’s a good read with some valuable insight, but it’s not for everybody. There are plenty of investors out there who have never set foot in the world of brokerage accounts, and don’t intend to. Many investors have a 401(k), Roth IRA, and a host of taxable mutual funds. Do they need a brokerage account? Not unless they want to trade stocks on their own.

Sometimes I think many of the Wall Street gurus think that trading in the stock market is a necessary practice for achieving wealth. Perhaps surprisingly it’s not- many people enjoy building a business and working at a career that provides long-term growth and opportunity. Many other people invest patiently without trading. Some folks think the market is just too complicated, and don’t want to risk any money trading. I can empathize with that, but at one point in my life I felt a strong desire to learn what trading is all about. My story is pretty much like Mr. Hoenig’s, except perhaps that I didn’t make as much money and don’t trade for a living now.

The conclusions I came to were born on the winding road of countless gains and losses, and the realization that, for me, trading stocks is no way to make a living! Naturally, if you are a professional or have a passion for trading, then more power to you. But to be quite honest, I realized that unless I was going to focus on trading full-time, or become a professional in the investment and trading world, I really had no business being there. It takes a lot of time and focus to get it right, and you can’t be very successful on a part-time schedule. Maybe there are exceptions- I’d love to hear about them. Trading just doesn’t get me there… but saving and investing does!

I would offer that most of us need to be a little more patient and disciplined over time, and instead of trading- focus on investing. Once I accepted that I wasn’t going to spend a lot of time trading stocks, I became a long-term investor, and focused on companies, stocks and mutual funds that would help grow my portfolio. Much of that means dividend paying stocks that return something for the risk I take when holding them over time. I also became someone who looked for opportunities to save money in every facet of life. Little costs add up to big dollars over the years. Something that David Bach calls “The Latte Factor” or how People Magazine says “A Latte spurned is a fortune earned!” Don’t see it? Let’s say you give up three latte’s per week at $3.50 each. That’s $10.50 per week, or $42 per month. Or if you cut back somewhere else and save $20 per week, or $80 per month? Take a look at a comparison:

That’s just from some extra savings each week, with monthly compounded interest. Maybe it looks like a paltry sum of money to some people, but it’s just a minor example. Imagine what we can achieve by saving more! It also shows how a little more interest can go a long way. And it presents an opportunity for us to look for saving money in everything we do over time. At home, at the grocery store, at the bank, when using credit cards, etc, etc. There are countless ways to become more frugal, efficient, thrifty… whatever you want to call it. Just doing it is the hard part, but once you get started- it becomes kind of fun.

Overall I think we can achieve a balance between needs and wants… taking care of ourselves and our families, treating ourself to good things now and then, and being proud of our savings and investing habits over the years. We can end up with a lot more than we ever dreamed of, if we just do our part each week. And by the way, that axiom about getting experience? Well, experience is pretty darn important, no question about it. But it’s not the only place we can learn. Learning from the mistakes and wisdom of others is often more important. There’s a quote I like from Benjamin Franklin, someone who long recognized the value of money throughout his life:

“Experience keeps a dear school, but fools will learn in no other.”

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