Excerpt from Wealth Strategies
Introduction
Success does not come about because you made the right investment, or invented the next big thing, or inherited family money, or even won the lottery. Success comes from deep inside you. Yes, you! It’s the burning desire to create and implement your personal goals and pursue your own personal financial strategies. Making money is not the only process you must accomplish. You must develop a strategy to conserve what you create, especially if you are already retired. This strategy includes the financial basics of budgeting. Yes, budgets! I don’t care how much money you make; it’s how much you keep. With expenses, taxes, and inflation emptying out your purse, holding onto what you make becomes a major challenge.
Many people spend money and worry about the consequences later. I’ve interviewed many would-be investors who started when their best opportunity for investing had already passed. The amount of their current income available for investing just wouldn’t be enough to meet their retirement needs. This is a wake-up call to those of you who have not yet begun to plan. Get started now!
In this book you will find some of the different techniques for establishing a viable lifelong investment program. You will also be given tools to ground yourself in the reality of an investment and not be misled by all the sales hype in the marketplace.
You will learn important elements necessary for effective personal financial planning. I will give you this information with the hope that you will use it in a responsible manner and not expect insider information in order to cheat the system and get rich overnight. Although the advertisements out there make us feel that we’ll miss the boat if we don’t buy what they’re selling, this book will help you to slow down, catch your breath, and plan for the long run.
There will be long-term investments suggested for most investors that include risk, which may be reduced by a variety of investment strategies. If you are already retired, your decisions are especially critical, as mistakes can be costly and there is no time for do-overs.
The stock market crash of 1929, the oil market crisis in the mid 1970s, the real estate recession of the early 1990s, and the high tech crash in early 2000 all followed an investor’s buying frenzy. The markets were up and the buyers were lined up to buy. Everyone seemed to be an expert. Many chose to buy because they expected predictable gains. Some walked away with all of the money, and others walked away with empty pockets and a bad taste in their mouth. Had these investors received proper advice, they would most likely have been properly diversified and practicing the defensive investment strategies that we’ll review right here in this book. Although diversification is not a guarantee against the risk of loss in a declining market, it may help reduce the volatility of your overall portfolio.
You see, successful investing is not only about investments. It’s about getting in touch with your own risk tolerances, investment patterns, available personal resources, and personal goals. From there, you need to map out an investing strategy that makes sense for your own situation, not someone else’s. Your plan should be one that will last a lifetime, changing only as your situation changes or as new investment opportunities become available.
You are going to learn about some critical areas that desperately need your attention. And you will determine those areas where the advice or assistance of a professional may be necessary. We will tie together a great deal of information into a comprehensive whole plan.
In this book, we will cover topics like:
- Cash management
- Risk management
- Investing during retirement
- Insurance
- Estate planning
- Employee benefits
- Retirement plans
- Retirement plan rollovers and early payouts
- Money market mutual funds, mutual funds, and exchange-traded funds (ETFs)
- Stocks and bonds
- Annuities
- Limited partnerships
- Real estate
- And much, much more!
There are several books in print offering excellent advice when it comes to investing and personal financial planning. The secret to successfully utilizing the information available is to make it relevant to your own situation. If you’re a do-it-yourself person, I suggest you learn as much as you possibly can. The level of knowledge you acquire could be the difference between financial success and costly mistakes. If you choose to use an advisor, the time you spend educating yourself will make you a knowledgeable and well-informed client.
This is not an adventure book offering inside information or quick answers that will make you rich overnight. Many self-made millionaires follow a process over time. This book gives you the tools to get you started and on your way to financial success and prosperity. I sincerely hope you find it helpful and of course profitable!
I will, throughout the lessons, share with you my own personal experiences in investing. No, I didn’t attend Harvard; my wisdom has come from life experience. My success has been accumulated over the long haul. My first million dollars of net worth was made up of illiquid real estate assets, business property, and retirement plans. Not glamorous and relatively risky, but my investments helped to provide for the growth and diversification of my portfolio, and they taught me some very valuable lessons.
Did you know that for every $400 per month you require in income, you might need to have about $100,000 invested?
Think about that! Unless you have a guaranteed retirement, a million-dollar portfolio becomes average. If you have $1,000,000 invested and earn, let’s say, 5% interest income, those earnings will give you around $4,000 per month.
So let’s get going — there’s a lot to learn!
Final Comments
I wrote this book to help you become more empowered to either do-it-yourself or find the right advisor for your needs. Being successful at making money takes time and sacrifice.
When I was in the third grade, my teacher told my mother that I might be mentally retarded. When I graduated from high school, I read at the seventh grade level. I was a great athlete, but I couldn’t get into the colleges that wanted me. I had to go to a junior college first. In college, I nearly had to bribe a professor to increase my grade so I could graduate.
I tested for every job I could think of: the U.S. Postal Service, the local police department, the county sheriff’s department, even the FBI. I never scored high enough to be accepted. It wasn’t until I volunteered as a reserve deputy, a position which was unpaid originally, that I was accepted. After several years of volunteering, there was a shortage of county employees and I was offered a full-time job. Fortunately, I had already established myself in the financial planning profession.
I share these disappointments not to gain your sympathy but to encourage you. I taught myself how to read, how to perform the necessary math calculations, and ultimately how to establish and run a business. I found that my years as a gymnastics head coach and a jailhouse and chain-gang guard gave me the tools I needed to manage people and businesses.
I sincerely hope this book has helped you learn more about investments and the financial planning process, especially in the areas of protecting your finances and family. With so many “experts,” it must be frustrating and sometimes downright scary knowing who to trust. It seems every time a sector of the economy heats up, everybody becomes an expert. Back before the days of the Great Depression of 1929, the stock market seemed to be heading straight to the sky. Everyone had tall tales of fantastic fortunes and profits being made in the market. People borrowed money to put a down payment on stocks. Well, we all know what happened next. The market crashed and the everyday citizen who took up the market as a hobby soon lost everything and was in overwhelming debt.
Remember my saying, “It isn’t what you invest in, it is how you invest”? First of all, no one should put all their eggs in one basket. We should not borrow money to purchase an investment that can be lost unless we can afford the loss! We should not follow the crowd and buy an investment after it has experienced substantial gains. If we commit to an investment that can drop in value, we must hold on for the long term and, if possible, buy more! Stay with the basics and do what you know.
Stay liquid. Don’t let any investment deplete your cash reserve. These dollars are reserved for emergencies such as loss of job or other financial crisis. For those of you with a secure job, I would reserve at least three months’ living expenses. If you own a business, add three months of your business expenses. When I was a child, my parents taught me that the safest job you could hold was with the U.S. government. Tell that to the thousands of federal workers who were laid off in the mid-1990s. I taught many an early retirement class for the government. I lectured to many government workers of different ages. Some were able to qualify for early retirement while others were simply let go! It’s this reality that we must prepare for. Don’t listen to others when planning your finances: Go with your own heart, and you will develop the path which is appropriate for you to follow.
Insurance
As boring as insurance can be, if you get caught without coverage, you could lose everything. Insure every risk you are exposed to, both personally and professionally. For most of us, this includes:
- Medical insurance
- Disability insurance
- Long-term care insurance
- Liability insurance (generally provided within homeowners and auto insurance)
- Professional liability insurance
- Auto and homeowners coverage
- Life insurance
Remember: The best you can hope for with insurance is that it was the worst investment you ever made!
The Three Stages
When things seem a blur and you have difficulty deciding where to place assets, stop and remember the lesson in the three stages of investing. This is a money-management tool that will guide you in choosing the proper investments at the proper time.
Stage 1
For stage 1 assets you want liquidity and safety.
- Bank checking account
- Money market mutual fund
- Credit union share account
Stage 2
Stage 2 assets must be liquid within 10 days. Although I recommend more conservative investments like bond mutual funds, you can utilize any asset falling within the parameters. Some people use individual growth-oriented stock mutual funds and aggressive growth mutual funds. Any of these investments work, but you must first decide what risk level you are comfortable with. Plan on liquidating in the worst possible market you can imagine. Remember to plan defensively; plan for the worst and enjoy the best of times!
Stage 3
This investment is not required to be liquid. In fact, it is preferable if it’s not. Stage 3 is for those investments that will not be at risk of being prematurely liquidated or drastically discounted in a down market. It’s these very long-term investments that may provide you with the most substantial growth. As always, invest in legitimate, sound investments with reasonable volatility and performance. Some examples are:
- Growth stocks
- Growth mutual funds
- Long-term bonds and mutual funds
- Limited partnerships
- Real estate
- Business ownership
All forms of retirement plans (401(k), IRA, TSA, pension, profit sharing, SEP-IRA, deferred compensation, employee stock option) are included.
Asset Allocation
As you begin to accumulate assets, don’t forget to practice asset allocation. When adding to your portfolio, take time to rebalance your assets according to your current plan. Look at the needed cash reserves, semiliquid long-term savings investments, and long-term growth investments. Don’t get caught up in the frenzy of any particular investment! You might be following the crowd over the cliff.
No Free Lunch
Be cautious of claims of fantastic returns and guaranteed earnings. When you understand the basics of investing, you are less likely to be taken advantage of. If you seek the services of advisors, they need to be compensated. Make sure you take advantage of the advice and remember: if you win, they win. Whether you pay a management fee for no-load securities or pay a commission, you should take advantage of the advice. Be aware that analysts tend to massage the numbers to favor their arguments.
Remember: If tortured long enough, the numbers will admit to anything.
Load versus No-Load
There’s nothing wrong with seeking out your own investments and becoming an investment hobbyist. Do remember one thing: the most important aspect in investing is the long-term plan. Many people seek the advice of the advisor but make the mistake of expecting this person to direct them to the investment of the month. When their new investments don’t top the charts, they lose confidence in the advisor. The primary services an advisor offers are:
- Personal money management suggestions
- Retirement planning
- Estate planning, tax planning, and asset allocation suggestions
- Long-term financial planning ideas and proposals (insurance, investments, pension plans, etc.)
- Motivational support when the market is down
- Motivational support when personal events require adjustments (death, divorce, disability, job displacement, etc.)
- Suggestions and ideas regarding buying or selling a business, real estate, or other property
- Personal support in areas of career development or lifestyle changes
Don’t pay a commission simply for a fund recommendation. You can find and research no-load mutual funds on your own. If you need financial planning services, you do have options. Knowing how your financial advisor is compensated will help you evaluate the services you are receiving. Remember, it’s only in the absence of value that price becomes an issue.
Remember the Market Crashes of 1929, 1974, 1987, 2001, and 2008
I don’t intend to scare you away from investing in the stock or bond market. My primary advice is to plan long-term and accept the commitment. History tells us that the best results and highest returns have come from being fully invested and properly allocated in the stock market at all times. History also tells us that this position is the most volatile over the short term. So, count your chickens and allocate them accordingly: short-term, intermediate term, and long-term. Be prepared for a market crash. Instead of becoming discouraged and pulling out, you can reposition some of your cash or bonds into the market and take advantage of the lower prices.
Practice Dollar Cost Averaging (DCA)
If you believe as I do, that we cannot predict the future, don’t forget dollar cost averaging (DCA). This technique takes some of the fear out of entering volatile markets. By investing small increments each month, you reduce the risk of buying at the top of the market. Here, you buy over a series of months or years, thus averaging your purchase prices. This technique is not designed to beat a rising market; as a matter of fact, in an up market you may underperform the market indexes. This practice allows you to get your feet wet a little bit at a time.
Estate Planning
Many of us assume we don’t earn enough income or have enough assets to be concerned with estate planning, but it’s not always about money itself. Guardianship for surviving children, family fights over inheritances, legal fees and taxes all force us to consider this most important area. Don’t wait until it’s too late. As much as I don’t like the idea of buying life insurance, there are some reasons to consider it and you must act early if you want to secure low rates for coverage.
Other concerns with estate taxes force us to seek qualified legal assistance when drafting documents such as living trusts and life insurance trusts. Remember, if we run out and buy all kinds of life insurance to provide cash for our estate to pay the estate taxes, we might just be adding value to the estate with the insurance proceeds. The IRS loves this! That’s why we need help with the technical areas of estate planning. Don’t fall victim to the newspaper and online ads that sell legal services for next to nothing. When it comes to legal matters and estate planning, by the time your family finds out the legal work was done incorrectly, it’s too late. Get qualified legal advice.
The Whole World’s an Expert
As you go out in the world of hype, egos, and yesterday’s news, beware of the programs that people sell to beat the market and all those newsletters and Internet sites that claim to predict tomorrow’s market. Learn the basics and stick to them. Don’t make the mistake of thinking that you’re going to beat the market all the time. The best we can hope for is to diversify among investments and allocate funds in such a way as to survive the down markets and capitalize on the up markets. The main thing is to not change positions just because everyone else does; do so only if it is to buy from the “losers” who sell out at the bottom of the market.
Let me share a little story about a gentleman who had the insight to look at the entire picture. While driving through a little farming town, I stopped to visit with the local coffee shop owner. The owner’s biggest complaint was that all the smart kids ended up leaving town for better opportunities. To prove this, he pointed out a gentleman named Raymond. He said, “This guy is the dumbest person in the whole town. Here, let me show you.”
He called out, “Hey Raymond, come over here.” Raymond followed his command, as he had done so many times before. “Raymond,” the man said, “I am holding two coins in my hands. You have the choice of one coin and one coin only. In my left hand is a dime and in my right hand is a nickel. Which one do you want?”
Raymond just stood there, staring at each coin in turn. Finally coming to a decision, he said, “I’ll take the nickel because it’s bigger.” Raymond reached out to the hand that held the nickel and slowly grasped the coin.
As Raymond walked away, the man couldn’t contain himself. He broke out laughing and said, “See, I told you so. Isn’t he the dumbest guy you ever did see?”
After listening to the man make fun of Raymond for a few moments, I broke into a jog and followed Raymond. “Raymond,” I cried, “wait up!”
He turned and faced me.
“Raymond,” I said, “I feel terrible about what just happened. Don’t you know that a dime is worth more than a nickel?”
“Yes,” he replied, “I know that.”
“So, why do you fall for this man’s foolish game?” I asked.
“Oh, that,” Raymond replied. “If I took the dime, no one would ever play the game anymore.”
Wow! What insight! This guy was willing to seem less than intelligent by following his own common sense while others made fun of him. But in the end, Raymond collected many nickels, far more than if he took the dime and ended the game. Who was the real fool here?
When planning your investments, you must not take your eye off the total picture. If some person selling a “sure thing” distracts us, we may enter a game that is already saturated and offers little upside potential. If a newsletter writer, magazine columnist, advisor, broker, insurance agent, late night infomercial host, or Internet guru had such insight or knew what was going to happen tomorrow, do you really think they would share their information with us? Come now, think about it! Who on Wall Street is going to give away their secret plan, charts and graphs, or inside information? Once they divulged the secret, the game would be over. Stick with the basics!
Remember, invest your time before you invest your money!
Well, that’s it. I hope you enjoyed this book, and I wish you the best as you glide into retirement!