Cryptocurrency…what’s all the buzz about?

Have you caught cryptocurrency fever, or are you at least wondering what it’s all about? Odds are, you hadn’t even heard the term until recently. Now, it seems as if everybody and their cousin are getting in on it.

 

Psychologists have assigned a term to the angst you might be feeling in the heat of the moment. It’s called “FoMO” or Fear of Missing Out. Education is the best first step toward facing FoMO and making informed financial choices that are right for you. So before you make any leaps, let’s take a closer look.

 

What is cryptocurrency?

Crytpocurrency is essentially a kind of money – or currency. Thanks to electronic security – or encryption – it exists in a presumably secure, sound and limited supply. Pair the “encryption” with the “currency,” and you’ve got a new kind of digital asset, or electronic exchange.

 

Well, sort of new. Cryptocurrency was introduced in 2009, supposedly by a fellow named Satoshi Nakamoto. His Wikipedia entry suggests he may not actually be who he says he is, but minor mysteries aside, he (or possibly “they”) is credited with designing and implementing

bitcoin as the first and most familiar cryptocurrency. Ethereum is currently its second-closest competitor, with plenty of others vying for space as well (more than 1,300 as of early December 2017), and plenty more likely to come.

 

Unlike a dollar bill or your pocket change, cryptocurrency exists strictly as computer code. You can’t touch it or feel it. You can’t flip it, heads or tails. But increasingly, holders are receiving, saving and spending their cryptocurrency in ways that emulate the things you can do with “regular” money.

 

How does cryptocurrency differ from “regular” money?

In comparing cryptocurrency to regulated fiat currency – or most countries’ legal tender – there are a few observations of note.

First, since neither fiat nor cryptocurrency are still directly connected to the value of an underlying commodity like gold or silver, both must have another way to maintain their spending power in the face of inflation.

 

For legal tender, most countries’ central banks keep their currency’s spending power relatively stable. For cryptocurrency, there is no central bank, or any other centralized repository or regulator. Its stability is essentially backed by the strength of its underlying ledger, or blockchain, where balances and transactions are verified and then publicly reported.

 

The notion of limited supply factors in as well. Obviously, if everyone had an endless supply of money, it would cease to have any value to anyone. That’s why central banks (such as the U.S. Federal Reserve, the Bank of Canada, and the Bank of England) are in charge of stabilizing the value of their nation’s legal tender, regularly seeking to limit supply without strangling demand.

 

While cryptocurrency fans offer explanations for how its supply and demand will be managed, it’s not yet known how effective the processes will be in sustaining this delicate balance, especially when exuberance- or panic-driven runs might outpace otherwise orderly procedures. (If you’re technically inclined and you’d like to take a deep dive into how the financial technology operates, here’s one source to start with.)

 

Why would anyone want to use cryptocurrency instead of legal tender?  

For anyone who may not be a big fan of government oversight, the processes are essentially driven “by and for the people” as direct peer-to-peer exchanges with no central authorities in charge. At least in theory, this is supposed to allow the currency to flow more freely, with less regulation, restriction, taxation, fee extraction, limitations and similar machinations. Moreover, cryptocurrency transactions are anonymous.

 

If the world were filled with only good, honest people, cryptocurrency and its related technologies could represent a better, more “boundary-less” system for more freely doing business with one another, with fewer of the hassles associated with international commerce.

Unfortunately, in real life, this sort of unchecked exchange can also be used for all sorts of mischief – like dodging taxes, laundering money or funding terrorism, to name a few.

 

In short, cryptocurrency, blockchain technology, and/or their next-generations could evolve into universal tools with far wider application. Indeed, such explorations already are under way. In December 2017, Vanguard announced collaborative efforts to harness blockchain technology for improved index data sharing.

 

That said, many equally promising prospects have ended up discarded in the dustbin of interesting ideas that might have been. Time will tell which of the many possibilities that might happen actually do.

 

Even if I don’t plan to use cryptocurrency, should I hold some as an investment? 

If you do jump in at this time, know you are more likely speculating than investing.

 

Bubble or not, consider these two points. First, there are a lot of risks inherent to the cryptocurrency craze. Second, cryptocurrency simply doesn’t fit into our principles of evidence-based investing … at least not yet.

 

Let’s take a look at the risks.

 

Regulatory Risks – First, there’s the very real possibility that governments may decide to pile mountains of regulatory road blocks in front of this currently free-wheeling freight train. Some countries have already banned cryptocurrency. Others may require extra reporting or onerous taxes. These and other regulations could severely impact the liquidity and value of your coinage.

 

Security Risks – There’s also the ever-present threat of being pickpocketed by cyberthieves. It’s already happened several times, with millions of dollars of value swiped into thin air. Granted, the same thing can happen to your legal tender, but there is typically far more government protection and insurance coverage in place for your regulated accounts.

 

Technological Risks – As we touched on above, a system that was working pretty well in its development days has been facing some serious scaling challenges. As demand races ahead of supply, the human, technical and electric capital required to keep everything humming along is under stress. One recent post estimated that if bitcoin technology alone continues to grow apace, by February 2020, it will suck away more electricity than the entire world uses today.

 

That’s a lot of potential buzzkill for your happily-ever-after bitcoin holdings, and one reason you might want to think twice before you pile your life’s savings into them.

 

Then again, every investment carries some risk. If there were no risk, there’d be no expected return. That’s why we also need to address what evidence-based investing looks like. It begins with how investors (versus speculators) evaluate the markets.

 

What’s a bitcoin worth? A dollar? $100? $100,000? The answer to that has been one of the most volatile bouncing balls the market has seen since tulip mania in the 1600s.

 

In his ETF.com column “Bitcoin & Its Risks,” financial author Larry Swedroe summarizes how market valuations occur. “With stocks,” he says, “we can look at valuation metrics, like earnings yield. With bonds, we can use the current yield-to-maturity. And with assets like reinsurance or lending … we have historical evidence to make the appropriate estimates.”

 

You can’t do any of these things with cryptocurrency. Swedroe explains: “There simply is no tangible relationship between any economic or financial parameters and bitcoin prices.” Instead, there are several ways buying cryptocurrency differs from investing:

 

  • Evidence-based investing calls for estimating an asset’s expected return, based on these kinds of informed fundamentals.
  • Evidence-based investing also calls for us to factor in how different asset classes interact with one another. This helps us fit each piece into a unified portfolio that we can manage according to individual goals and risk tolerances.
  • Evidence-based investing calls for a long-term, buy, hold and rebalance strategy.

 

Cryptocurrency simply doesn’t yet synch well with these parameters. It does have a price, but it can’t be effectively valued for planning purposes, especially amidst the extreme price swings we’re seeing of late.

 

What if I decide to buy some cryptocurrency anyway?

We get it. Even if it’s far more of a speculative than investment endeavor, you may still decide to give cryptocurrency a go, for fun or potential profit. If you do, here are some tips to consider:

 

  • Think of it as being on par with an entertaining trip to the casino. Nothing ventured, nothing gained – but don’t venture any more than you can readily afford to lose!
  • Use only “fun money,” outside the investments you’re managing to fund your ongoing lifestyle.
  • Educate yourself first, and try to pick a reputable platform from which to play. (CoinDesk offers a pretty good bitcoin primer.)
  • If you do strike it rich, regularly remove a good chunk of the gains off the table to invest in your managed portfolio. That way, if the bubble bursts, you won’t lose everything you’ve “won.” (Also set aside enough to pay any taxes that may be incurred.)

 

Last but not least, good luck. Whether you win or lose a little or a lot with cryptocurrency – or you choose to only watch it from afar for now – we remain available to assist with your total wealth, come what may.

 

 

10 Practices for the New Year

Happy New Year! Now that 2017 is a wrap, one of the best presents you can bestow on yourself and your loved ones is the gift of proper preparation for rest of the year. Want to get a jump-start on it? Here are 10 financial best practices to energize your wealth management efforts.

  1. Save today for a better retirement tomorrow. Are you maxing out pre-tax contributions to your company retirement plan? Taking full advantage of your and your spouse’s company retirement plans is an important, tax-advantaged way to save for retirement, especially if your employer matches some of your contributions with “extra” money. And, by the way, if you are 50 or older, you may be able to make additional “catch-up contributions” to your plan, to further accelerate your retirement-ready investing.
  2. Verify your valuables are still covered. Most households have insurance: home, auto, life … maybe disability and/or umbrella. But when is the last time you’ve checked to see if these policies remain right for you? Over time, it’s easy to end up with gaps or overlaps, like too much or not enough coverage, deductibles that warrant a fresh take, or beneficiaries who need to be added or removed. If you’ve not performed an insurance “audit” recently, there’s no time like the present to cross this one off your list.
  3. Get a grip on your debt load. Investment returns will only take you so far if excessive debt is weighing you down. Prioritize paying down high-interest credit cards and similar high-cost debt first, and at least meeting minimums on the rest. You may also want to revisit whether you still hold the best credit cards for your circumstances. Do the interest rates, incentives, protections and other perks still reflect your needs? Ditto on that for your home loan.
  4. Check up on your credit reports. Speaking of those credit cards, have you been periodically requesting your free annual credit report from each of the three primary credit reporting agencies? Be sure to use annualcreditreport.com for this purpose, as it’s the only federally authorized source for doing so. By staggering your requests – submitting to one agency every fourth months – you can keep an ongoing eye on your credit, which seems especially important in the wake of last summer’s Equifax breach.
  5. Get a bead on your budget. How much did you spend in 2017? How much do you intend to spend in the year ahead? After current spending, can you still afford to fund your future plans? Do you have enough set aside in a rainy day fund to cover the inevitable emergencies? These days, there are apps available to help you answer these important questions. Mint.com is one such popular app.
  6. Get ready for tax time … with a twist. While income tax reform looms large in the U.S., the changes won’t apply to 2017 taxes (due by April 17, 2018). There now may be tax planning opportunities or challenges to consider as the new laws take effect in 2018. You may want to fire up those tax-planning engines on the early side this time around.
  7. Give your investments a good inspection. Where do you stand with your personal wealth? Have you got an investment strategy to see you through? Does your portfolio reflect your personal goals and risk tolerances? If you experienced strong growth in 2017, is it time to lock in some of those gains by rebalancing your portfolio to its original mix? While investment management is a marathon of patient perspective rather than a short-sighted sprint of mad dashes, a new year makes this as good a time as any to review the terrain.
  8. Ensure your estate plans are current. Do you have wills and/or trusts in place for you and your loved ones? If so, when is the last time you took a look at them? Your family may have experienced births, deaths, marriagies or divorces. Dependants may have matured. You may have acquired or sold business interests, and added new assets or let go of old ones. Your original intentions may have changed, or government regulations may have changed them for you. For all these reasons and more, it’s worth revisiting your estate plans annually.
  9. Have a look at your healthcare directives. As healthcare becomes increasingly complex, advance directives (living wills) play an increasingly vital role in ensuring your healthcare wishes are met should you be unable to express them when the need arises. Don’t leave your loved ones unaware of and/or unable to act on your critical-care or end-of-life preferences. If you don’t already have a strong living will in place, Aging with Dignity’s Five Wishes is one helpful place to learn more.
  10. Give your newly adult children the gift of continued care. Have any of your children turned 18 recently? You may send them off to college or a career, assuming you can still be there for them should an emergency arise. Be forewarned! If you don’t have the legal paperwork in place, healthcare providers and others may be unable to respond to your requests or even discuss your adult child’s personal information with you. To remain involved in their healthcare interests, you’ll want to have a healthcare power of attorney, durable power of attorney and HIPAA authorization in place. It may also be prudent to establish education record release authorizations while you’re at it.

Next Steps in the New Year

We get it. Life never stops. The holiday season can be a busy time that often spills right into the new year. Don’t despair if you can’t get to all ten of these tidbits at once. Take on one each month, and you’ll still have a couple of months to spare before we’re ringing in 2019.

Better yet, don’t go it alone. Let us know if we can help you turn your financial planning jump-start into a mighty wealth management leap. It begins with an exploratory conversation.

Reflections on a Happy Thanksgiving

What makes you happy?  As we wish you and yours a Happy Thanksgiving, we’d like to take a moment to reflect on this timeless question.

You probably already realize that piles of possessions by themselves aren’t enough. But it may be less clear what does generate enduring happiness and how we, as your trusted advisor, might be one of your core alliances for discovering it.

First, let’s define what we’re talking about. We are fond of this description by “The Happiness Advantage” author, popular TED Talk presenter, and Harvard researcher Shawn Achor:

“Happiness … isn’t just about feeling good,
it’s about the joy we feel while striving after our potential.”

Such a simple statement, but it’s packed with profound insights.  To take this even further, I believe that we get closer to our potential when we focus more on others rather than our own well being.  That is, being generous towards others plays a big part in achieving sustained contentment and joy.  It is quite the paradox (that we get the most when we give the most), but it has been believed through the ages and proven more recently in the research.

Happiness isn’t about indulging in fleeting pleasures.

In fact, it’s closer to the opposite of that. If you can only be happy once you’ve “scored,” you are limiting your joy to isolated incidents instead of weaving it into the fabric of your life.

You can still be happy, even when life isn’t all puppies and rainbows.

Distinguishing enduring happiness from occasional pleasures frees us to enjoy even our most challenging experiences, and to savor them as among our fondest memories. It’s why we may willingly burn the midnight oil on a project of deep interest. Pay a personal trainer to push us harder than we’ve ever gone before. Volunteer our hearts and minds to others in need. Give birth.

Everyone has different sources of happiness, but the joy it can spread is universal.

In a world that sometimes seems increasingly polarized, a greater appreciation for happiness might just bring us closer together. As Achor comments: “Joy makes us want to invest more deeply in the people around us. … It makes us want to learn more about our communities. It makes us want to be able to find ways of being able to make this a better external world for all of us.”

By coming together to focus on what sustains us – an optimistic outlook, value-driven action, meaningful relationships – therein we can find greater happiness. That’s what the evidence suggests, anyway.

Again, we wish you a most Happy Thanksgiving!

What do the tea leaves say today?

If you’ve taken our past advice about ignoring the onslaught of breaking market news, you probably didn’t read Russell Investments’ recent “2017 Global Market Outlook Q4 Update.”

I’m not prone to pore over these relatively unremarkable analyses ourselves, but I do read a lot of ‘industry speak’ as part of our due diligence. More times than not, it for purely entertainment purposes to see what the tea leaves say on that particular day.  This is how I came across this intriguing statement in Russell Investments’ wrap-up:

“Our main message for the close of 2017 isn’t much different from our opening one: we maintain our ‘buy the dips and sell the rallies’ mantra.”

Great idea, but a little weak on practical application. It’s akin to suggesting that lottery players can score big … as long as they consistently pick the winning numbers!

Immediately following Russell Investments’ mantra, you’ll find this disclosure:

“These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.”

In all seriousness, I feel these sorts of reports speak inadvertent volumes about the evidence-based mantra to which we adhere.  If you are not familiar with this term evidence-based investing, be on the lookout as I will be writing more about this soon. It is a main tenant to the way we view and implement investment strategies.  By depending on practical evidence instead of fanciful forecasts, our views are rarely subject to change – especially not in hurried reaction to current market conditions.

Instead, we continue to believe the best way to manage your personal wealth is to:

  • Stay laser focused on your bigger picture…are you on track to achieve your goals. Buy, sell and rebalance your portfolio according to your own carefully crafted plans.
  • Focus on an efficient, evidence-based approach to capturing the market’s durable returns while managing its related risks.
  • Ignore the market’s daily distractions, especially its fleeting dips and rallies; they’re far more likely to block the view toward your higher goals than to yield big wins through the chase.

This is our mantra, and so it shall remain – regardless of the date at the top of the page.

Equifax Security Breach, Part II

I initially wrote about my take on the Equifax Security Breach about a month ago.  In that time since, the news continues to come out about just how pervasive this hack was (and maybe continues to be).  We were already on high alert for instances of identity theft. But the source, scope, and what seems like a justified feeling of betrayal associated with this particular breach have ushered in a new era of cybersecurity. There was before the Equifax security breach; now there’s after.

What does “after” look like, and how can we help you navigate it?  Unfortunately, there is no one-size-fits-all regimen, but here are some of the most frequently cited actions we’ve seen, along with our commentary on them.  Some of these were mentioned in my first post (repetition never hurts) but I have added some new thoughts as well.

What should you do right now?

  1. Check your credit reports using annualcreditreport.com. Keeping an eye on your credit reports has long been a best practice, and should continue to be, today more than ever. Be sure to only use annualcreditreport.com. As the website says, it is the only provider authorized by Federal law to provide you with the free annual reports that already are rightfully yours. Also, so you can obtain a free credit report more than annually, consider staggering the three primary agencies’ reports, selecting one to review every four months.
  2. File your tax returns as early as you’re able. This might sound strange considering that we are only a few days away from the extension deadline; however, January 1st, 2018 will be here before we know it. Plan to have your tax information organized and ready to go to your CPA.  Filing early minimizes the opportunity for an identity thief to file a bogus return on your behalf.
    This may not be practical for some of you, but the bottom line…if you can file earlier than later, do so.
  3. Consider placing a fraud alert or a freeze on your credit. Deciding which (if either) of these actions makes sense for you depends on your personal circumstances. For example, if you’re frequently applying for credit, placing a freeze may be impractical. On the other hand, if you have been a victim of identity theft, an alert might not suffice. In this instance, it’s worth reading through the advantages and disadvantages before determining your next steps. We’re here for you as well, to serve as an additional sounding board.
  4. Consider enrolling in a credit monitoring service. Equifax has offered to provide a year of free credit monitoring and identity theft protection via TrustedID Premier. We’ve seen mixed reviews on whether it makes sense to accept Equifax’s offer. First, there’s the whole trust issue raised by the recent breach. Plus, identity thieves have nearly endless patience, so one year of monitoring is only the beginning. That said, other independent services can be costly (especially if you’ve got an entire family to cover), and they may not ultimately offer much that you cannot do on your own if you so choose. It comes down to a cost/benefit analysis unique to you.
  5. Regularly change the passwords and PINs on your financial accounts. Like regularly monitoring your credit reports, periodically changing your financial account login information has been and remains a best practice. Quarterly or at least twice a year makes good sense to us.

Information fatigue is the enemy of action

We’ve seen other tips and pointers besides these, some of which may be advisable as well. To avoid informational overload, here are three guiding lights:

  • Pace yourself. As with any seemingly insurmountable challenge, it may be best to take things one step at a time, lest you lock up and end up doing nothing at all.
  • Patiently prevail. Approach your security as an ongoing process rather than a quick fix. After determining which actions make sense for you, set up a routine and a schedule for implementing them. Write down your plans, and then follow them.
  • Partner with us. We won’t go into sensitive specifics here but, as financial advisors, we have long been taking strong measures at our end to protect against hackers and identity thieves. That said, no system is impregnable. The more aggressively we join forces to thwart cybercriminals, the more likely we will ultimately prevail.

So, how can we help you moving forward? If you’d like to consult with us as you think through some of the points we’ve touched on above, we welcome the conversation. We also ask you to be responsive when we reach out to you with security-related questions or suggestions. For example, earlier this year, we produced a quick-reference and more detailed overview, “Avoiding Financial Scams and Identity Theft Slams,” filled with perennial information and best practices. We’d be delighted to share those materials with you so just ask.

As this wise educator observed in reflecting on the Equifax breach, “Security isn’t a product. It’s a process.” Just as sensible investing involves taking appropriate near-term steps in the context of an ongoing, personalized plan, so too do we find it increasingly imperative to respond to this and future cyberattacks with upfront planning, well-reasoned action and continued best practices. Let us know how else we can assist with that!

 

What does the Equifax data breach mean for you?

Financial monitoring…this is part of financial planning that gets often overlooked.  Like a crack in the foundation of a house, it is hard to see unless you are looking for it, but it can have catastrophic consequences if left unattended.  As you may have heard, Equifax (which is one of the 3 main credit reporting agencies) admitted to a historic data breach which occurred earlier this year.  If you haven’t heard the details, you need to read about it here.  This explanation and suggested action steps from the Federal Trade Commission is excellent.  Supposedly 143 million people had their personal information potentially comprised.  I say ‘potentially’ because Equifax has not disclosed the exact details of the breach, so we really don’t know the extent of what occurred.  I find it pretty disappointing that the breach occurred earlier this year, they knew about it several weeks, if not months ago, and yet we are just now hearing about it.  That said, I wanted to take the opportunity to highlight a few different points.

What should you do?

First, do not get lax about these data breaches.  Just because they seem to happen all the time, and the numbers of people affected seem so large that it is hard to fathom as real, do not take a laissez faire approach, thinking it will never happen to you.  This is exactly the attitude these criminals look to exploit.  And make no mistake about it…the days of the disgruntled teenager hacking away in his parents basement is long past.  Most of these hacks and the subsequent identity thefts are undertaken by world wide organized crime rings.

Next, check your credit report.  Note, this is different than requesting your credit score.  By government mandate, everyone is allowed one free credit report every year.  You can go through the process here.  It only takes a few minutes.  If you are married, do this separately for both spouses.  This will give you a detailed listing of all credit accounts that are open, or were previously opened, in your name.  I suggest that you download and review this every year.  I have done this fairly consistently, and have found error accounts, or accounts that I thought were closed out but were actually still open.  Closing a credit account (like an old Gap card that you never use or the credit card you opened that one time to get a free plane ticket) may drop your credit score temporarily, but I think it is worth the short term hit so as not to have accounts open that you never use or check.  These dormant credit accounts can also be great opportunities for criminals to hack and use.

Finally, you can be your own best protection against identity theft by just being aware and diligent.  I suggest you read through the FTC’s post (link above) and review your annual credit report.  But don’t stop there…these institutional hacks open the door for more and more identity theft, the fastest growing crime in the world.  At PLC Wealth, we have several procedures in place to do our part to make sure our clients money is protected and secure.  Additionally, TD Ameritrade has even more built-in procedures to ensure money does not move to anyone other than the account owner.  But we can not protect your bank accounts or credit accounts, which seem to be where much of this white collar crime occurs.  It starts with personal information being stolen, then moves to the criminals (usually through computer programs) trying to probe to see where they can get in.  If you think your bank account has been compromised, let the bank know immediately.  They will change your account number and give you new bank cards.   If you see a strange transaction on a credit card, let the credit card company know right away.  It’s likely that you won’t be held responsible for that charge, and they will send you new cards immediately, sometimes overnight.

The main point of all of this is that you need to be diligent.  With 143 million people exposed as part of this latest breach, it is likely that some of your personal information was part of it.  I checked Equifax’s alert site and found that both my and my wife’s information was part of the breach.  That being said, I will most likely not take part in the free credit monitoring service that Equifax is offering, primarily because the service will automatically start billing at their normal monitoring rate after the first year, unless you proactively cancel.  That just seems like a slick way to get more people paying for their services rather than being a true pro bono offering.  I will, however, be watching transactions diligently and checking my own credit report for anything that looks off…and I think you should too.

Growing Wealth: Not for the faint of heart

Money is a great servant but a bad master. Francis Bacon

Joshua E. Self, CLU, ChFC, CFP®

June 9th, 2017

How many of us plan, save, and invest for the future, anticipating that one day we’ll get to a point of enjoying our wealth? And all along the way, we find our personal lives, family lives, and financial lives becoming increasingly complicated, taking more of our time, not less?

How often have we heard of or been directly affected ourselves, by the unexpected and untimely illness, disability, or death of those we know and love? It is a fact of life: No one makes it out alive. On the other hand, if both a husband and wife live to be sixty-five years old, 50% of the time, one individual from that couple will live 30 more years! Without knowing the future, how do we live our lives to the fullest today, while still being good to our future selves?

We’ll tackle these challenges in three parts. First, be good to today’s you and to future you. Second, give serious consideration to lowering your financial goals – or at least pause to ponder the motivation for the money goals you have set for yourself. Third, get help to manage your growing wealth and your shrinking time.

Part one: Make sure it’s good for both of us – today’s you and future you

We often sense tension between preparing for an uncertain future and enjoying today. On the one hand, when you get right down to it, today is really the only time we have. On the other hand, we know that we desire to care for those we love and for ourselves in the future. How do we resolve this tension?

The answer to that question is a good-news-bad-news story. First the bad news: We can’t resolve this tension. Now the good news: There are some really important things we can do to live well with this tension.

The one and only you

First of all, as you consider where to spend your time and money, consider those things that only you can do. Only you can call your mom. Only you can be a husband or wife to your spouse. Only you can be a father or mother to your children, or a good friend, or a good neighbor to the people in your life. Only you can run your business or do your job just the way you do it. Never trade away the things that only you can do.

There are things that other people can do for you, and if you can afford it, you should consider trading dollars for time so you can invest back in the opportunities that are unique to you. The perennial favorite outsourced task for dusty husbands everywhere (or at least in the southeast) is lawn care, but you can expand your thinking from here. Your assistant (virtual or otherwise) can help you with your e-mail and calendar. Amazon can help you with your shopping. A Roomba can help keep your floors clean while you sleep.

Stay healthy!

Next, care for your health. It costs very little money (in some cases it saves money) to exercise and eat the right amount of healthy food. Caring for your personal health is one of the highest return-on-investment activities you can do. And it’s one of the best things you can do for your future quality of life.

Shred your excuses in this area. Can’t work out because you don’t want to join a club or gym? Running, cycling, pushups, sit-ups, and stretching are free in America. Can’t get exercise during the workday because you don’t want to sweat at work? Walk or do the stairs – just get up and move. Track your steps and challenge yourself to hit the 10,000 mark Monday through Friday. Can’t eat “healthy food” at a restaurant? Order the side salad and a cup of soup; substitute water for sweet tea; eat only half of the cheeseburger and box the rest for tomorrow! There’s always a way to hit your goal if you want it enough.

Flip the script in your mind from “I can’t” to “How can I?” And here’s more great news – none of these things we’ve just discussed costs very much money at all. It’s a triple-win strategy: Better life now, better life later, and more wealth for future you.

A strategy for spending

But what about things that do cost money in the present, and so will, by arithmetic, reduce your future wealth? Many times we’re not as clueless on this topic as we pretend we are. We have lived our lives up to this point and can reflect on our past expenditures and ask ourselves whether they delivered the enjoyment we expected for the money we spent. And, if we’ll meter our consumption over time, we can probably afford everything we want anyway.

For example, if you have a family goal to take a particular trip with your children or grandchildren while they’re school-aged, there are only certain years when you can get this done. By contrast, your kitchen remodel, unless you are no longer able to prepare food in your kitchen due to a fire or flood, can be deferred until the kids are older. Under this scenario, you can enjoy the trip now, look forward to your kitchen remodel later, and get both done over time.

Try this thought experiment: For any expenditure at a particular time, project yourself into the future and look back on what you spent. Are you delighted, indifferent, or disappointed with the decision? If you’re delighted, and if you have the money, go for it. If you’re indifferent, wait until your thoughts become clear. If you’re annoyed with yourself that you parted with your dollars, just say No.

Part two: Ask why

Toddlers are famous for asking “Why?” As a parent, I’ll agree they take this question to extremes, but as adults we can become complacent and ask this question too seldom. For example, if you’ve set a net worth goal of $5M (or $2M or $10M), take a moment and ask, “Why?” Is it because it sounds good to you? Is it because you’ve used some analysis and determined this is the amount you need to replace your current income? Have you considered that it is actually your spending (plus inflation), not your income that you need to replace in retirement? Does this fact suggest anything to you?

Remember, for everything you get, you give up something else. Every hour you work in your job or business is an hour not spent on something else. Every dollar you invest for tomorrow is not spent on something today.

Enough is enough

Imagine a couple celebrating their wedding anniversary at a special spot. The tab for two is almost $500. However, they are prepared for this, and the dining experience was a deliberate decision (in fact, a family member had given them a gift certificate!). Here’s more about that fabulous meal: The couple was at the restaurant for four hours and consumed enough calories to last at least one full day, along with an entire bottle of wine. The children stayed home with a sitter (more money!). It was a lovely and truly memorable evening.

But would you want to spend four hours at a restaurant even once a month, let alone several times each week? If you ate like that very often, you’d soon be overweight. A glass of wine is nice, and more is nice on a special occasion, but that level of alcohol consumption on a regular basis doesn’t help your future self. And, as crazy as they are, you probably enjoy sharing supper with your children.

In a lengthy podcast (now lost from his archives), Joshua Sheats did a terrific job telling the story of why lowering your financial goals can be a big help for your life, both now and in the future. Whether I accepted all the assumptions or not, I listen carefully as he read about the different budgets based on different levels of wealth, and asked myself whether a higher level of consumption in the future is actually what I want.

How much you need depends on how much you spend

Next, as I alluded above, it is not actually your current income that you need to replace in the future. It is your inflation-adjusted spending that must be replaced by your investments.

Two insights leap from this fact: First, you must know what your spending is in order to know what you need to replace. This implies some form of budgeting or tracking of your expenditures. Second, you’re in the driver’s seat on how much you spend in every category of your budget. If you want to be financially independent sooner, reducing your expenses is the way to go.  Henry David Thoreau told us “that man is richest whose pleasures are cheapest.”

How much will ‘future you’ be able to utilize from the assets that you have accumulated? This can only be prudently answered in the context of your total financial plan. There are a number of ‘rules of thumb’ you could use, but these are not able to consider all of the nuances and variants of your financial plan, so talk to your financial planner about this.  Some food for thought to help you prepare for the conversation can be found here and here.

Part Three: Get help

You may not consider yourself wealthy, but the fact that you are reading this article means that you are probably in the top quartile of income earners or asset gatherers…you have wealth or the ability to create it. Just because you don’t live ostentatiously doesn’t mean that you are not wealthy.

The wealthy, and those who will become wealthy, have a team of advisers. Roughly speaking these advisers can be broken into two groups. The first group contains those with unique knowledge of you and of life in general – your spouse, adult children, parents, closest friends, and perhaps a mastermind or industry group of which you’re a part. The second group of advisers has specialized domain expertise and includes estate and corporate attorneys, CPAs, and CFP’s.

According to Tom Stanley, whose research on millionaires is unsurpassed, the truly wealthy have a low propensity to spend on high-status items like cars, clothes, and watches, but are willing to part with their carefully husbanded dollars to get the right advice on their taxes, contracts, and financial plan. The number one ranked activity shared by decamillionaires, engaged in by 85% of survey respondents within the past year? Consulting with tax experts! (The Millionaire Mind, page 374).

As you accumulate wealth and your financial life becomes more complex, keeping good relationships with both your informal and formal team of advisers will help you make wise decisions and maintain and grow what you’ve worked so hard to build. “In an abundance of counselors there is safety.” Proverbs 11:14.

Conclusion

As you grow in your life and your wealth, there is a genuine risk of missing the forest for the trees. You are accumulating wealth at least in part in the hope of enjoying it in the future. It is critically important that you take the steps today not only to grow your wealth for the future, but to celebrate and enjoy the journey from here to financial independence.

Along the way, embrace the tension of caring for both today’s you and the future you. Ask why you’re aiming for your particular financial goals (and take a good look at expenses – are they delivering for you the way you want?). Finally, get the help you need in every area of your life, including your financial life, to make the best decisions you can. Death and taxes are the only guarantees.  But there are many, many things we can do to stack the odds of a joyful life now, and financial independence in the future, in our favor.

Why Do We Behave Badly When it Comes to Money?

You are standing on the edge of a cliff and the only thing that separates you from a 1000 foot fall are the rocks you are standing on and a small branch sticking out of rocks, hanging perilously over the abyss.  However, you have been told that if you could just get out to the end of that branch, the view becomes amazing and it would change your life.  At your core, you know a ‘view’ can’t change your life.  But what if they are right?  What should do?  There is not a mentally sound person alive that would not agree that the right thing to do would be to back away from the cliff’s edge.  We are a species that values survival, so this makes sense.  But when it comes to money and money decisions, we do this over and over and over again.

I am not referring to just investment decisions, although these are well documented.  Karl Richards wrote a fantastic book called The Behavior Gap where he discusses, among other things, how it is that the average mutual fund performance is between 2-4% per year higher than the average performance of the investors…in that same fund.  In short, it is investors behaving badly by buying high and selling low.  I will guarantee that every one of those investors got in the game with the goal of buying low and selling high, so why did the majority of them do just the opposite?  This is the behavior gap, and Karl will explain it much better than I will, so read his book.

I am also referring to our decisions around other areas of finance such as cash flow, debt and generosity.  I think most people know what they should be doing with these areas of finance, but very few actually execute this well.

Cash flow is pretty straight forward.  The #1 principal when it comes to money is ‘Spend less than you make.’  Absolutely no other part of your finances will work as well as they should if you do not have this under control.  You cannot plan and save for the future if you are not staying solvent today.  Heck, you won’t be able to plan for tomorrow.  This is critical and is a lesson I have had to learn the hard way.

Debt flows right out of cash flow.  Show me a person that is spending more than they make, eventually, we will be discussing their debt problem.  The problem with debt is that you are writing checks off of your future with no assurances that the money will be there to pay for it.  It may work out ok for you, but then again, it may not, and do you really want to live with that uncertainty?  Make no mistake, there are better and worse uses of debt, but the principal of debt is to be careful.  The old Proverb states that, “The debtor becomes slave to the lender.”  If you have ever been in an extreme amount of debt, you understand what it means to be indentured to that debt.

Generosity is something we should all practice on a daily basis to as many people that intersect our life.  This is life at its fullest.  Of course there are many more ways to be generous and kind to someone other than using your money.  However, there is also no question that the thoughtful and strategic engagement of money with need can changes lives and impact people for generations to come.  I think we are all wired to want to help.  It is an incredible feeling to know that your efforts, thoughtfulness, and yes, money, have made an impact on someone.  It will change their day, but I am certain it will change your day.  But you can’t even get here if you have misbehaved so badly in other areas of your financial life.  We all know this at our core, and yet we knowingly sabotage our desire to

I don’t think anyone does this on purpose, but this is what happens when the behavior gap is compounded exponentially.  It is never just about what we did to miss out on returns this year or what bad decision we made today to live beyond our means.  These decisions are never made in a vacuum and they always compound into a much bigger problem if a course correction is not made.

Post Election Letter to Client

Do you remember what I wrote earlier this year in June after the historic Brexit vote in Great Britain? In light of our own historic vote in the US yesterday, I think I could cut and paste every word and it would still be as relevant as it was then. Winston Churchill rings in my ears yet again, reminding us that “Democracy is the worst form of government, except for all the others.” We do not have a perfect system to elect our officials, but it is the system we have had for generations that has allowed for a peaceful transfer of power since the beginning of our young nation. And it worked again. It worked in the sense that, regardless of which side of the ticket you voted for and supported, we have a system that gives us a voice in the outcome of the formation of the government that is in place to represent us. This is no small feat and cannot be overstated. But make no mistake about it…presidents do not make this a great nation that we live in, people do. We have always been a nation with some pretty incredible people, so that give me encouragement.

Do you know what else I said in June? “Any conclusions around what these new trades deals (insert ‘this new presidency’) will look like and the impact on global economies is purely speculation at this point.” Make no mistake about it, the volatility in the futures markets overnight shows that investors are still looking for details on plans and policies. As those come out, likely within the new President’s first 100 days, the markets will digest it and move on.

So what does this mean for global stock markets and your money? In the long term, probably not much. In the short term, probably more volatility than we have seen in recent months. Historically, markets are pretty much impossible to predict in the short term. People have tried to predict and failed for years, and other will continue to try and fail. In the long term (and we are talking 10+ years), however, they tend to behave pretty consistently. And what does that behavior look like? Stocks do better than bonds, and both tend to grow over time. No matter what is going on in the short term, if you are going to have a successful financial life plan and achieve your goals, you have to get compound interest working for you. And the way you do that is to get in the game and stay in the game.

Am I saying that you should do nothing? No, not at all. I may sound like a broken record here, but you have to look at volatility, especially larger than normal volatility, as a unique opportunity to buy good, long term investments while they are on sale. I will be spending time today going through client accounts to see if there is excess cash that should be utilized to buy any short term dip, if there is a dip. These strategic rebalances add value over time. Interestingly enough, even though the media was quick to highlight that US stock futures were down overnight over 5% (at one point, signaling an opening worse than the day after 9/11), as I review the S&P 500 index right now at noon EST, it is UP almost 1%! That is a dramatic turn around, but highlights that, friends…don’t pay attention to what the media is trying to sell you. They sell fear, and fear is not a good partner when it comes to planning or investments.

Should you make any other changes to your financial life plan or investment strategies? No, probably not. When it comes to money, the best thing you can do for yourself in most cases is exactly nothing. Don’t take the bait that in front of you from so many different angles…the media, friends, family. Don’t make drastic changes you will live to regret later. Don’t get too emotionally tied in to what you see on the news. Emotions can make terrible decisions. When you hear that little voice trying to amp up the fear in your head, drowned it out with truth. The truth is that you are still ok…stick to the plan that you made during calmer days. You have to remember to control what you can control. This is why I harp so much on making a plan that maps out your goals and puts you on a path to achieve things that are most important to you. Buying in to the fear found in the day to day does not help you one ounce to harness your wealth to live your great financial life.

All of this is a wonderful reminder to make sure you have a plan that matches your values with your money. This is where you play in the realm of controlling what you can control. Can you control the Return on Investment (ROI) that you get from day to day? No, you can’t, and neither can I! The markets will provide the return that the markets provide…your job is to stay invested so that you can capture 100% of that. I want you to focus on achieving your maximum Return on Life (ROL) and you do this by having a thoughtful, well-designed plan that matches your money and your values. ROL trumps (excuse the play on words) ROI any day of the week because ROL means you are moving towards goals that are meaningful to you and impact the lives of those around you. That is what truly matters and can be accomplished no matter who gets elected as president. If you are not sure if you are on track or haven’t looked at your plan lately, get in touch with me and we’ll make sure you are controlling the things that you can control.

Stay calm, friends…

Josh

On Brexit

“Democracy is the worst form of government, except for all the others.”

 

It’s ironic to me that this quote is associated with Winston Churchill, considering all the going’s on in the last 24 hours within his home land.  As you no doubt have heard, the unlikely occurred and voters in the United Kingdom voted to leave the European Union after 43 years of membership.  The uncertainty that this casts on economies around the globe has caused stock, currency and even some bond markets to behave erratically today.  

 What I want you to know is that all is not lost, the sky is not falling, and the world as we have known it is not over.  I walked out of the house the morning for an early morning run, and you know what I heard?  The same thing I hear on every other morning…the birds were alive and chirping, the wind blowing through the trees which had been replenished with an overnight rain, and oxygen still filled my lungs just like it has on every other day.  It reminded me that we have to concern ourselves with things that we can control, and remove worry around events that we have no control over.  Brexit is one of later mold.   

 What does this mean for you and me?

The fact is I don’t know…no one does.  There is so much still yet to be determined.  The voters have made their voice known.  Now it is up to Parliament to move forward and negotiate the details of their wishes.  There will be months, if not years, of new negotiations between the UK and the EU and other trade partners.  Any conclusions around what these new trades deals will look like and the impact on global economies is purely speculation at this point.  But the fear and uncertainty in the ultimate conclusion is exactly why markets are behaving so erratically today, and probably for some days to come.  The value declines do not mean that the markets think the world is collapsing…it just means that they don’t know what is going to happen, so ‘traders’ are acting on emotion, fear and possibly greed.  These are never good ingredients for a long term investor’s strategy.  But I do know that this vote should not change the course of your long term plan.

 Trader vs. Investor

A trader is actively trying to time the market, moving in and out of investments based on one data point or another.  The research shows this has never been a consistent winning strategy over time.  An investor follows along with Warren Buffett’s favorite holding period for investments: forever.  Be an investor, not a trader.  I think Warren knows what he’s talking about.

 What should you do?

The best thing you can do for your self is exactly nothing.  Short term market movements do not change the course of your long term plan.  Remind yourself where you stand in regards to your long term goals.  Log in to our planning site, MoneyGuidePro, and see if your progress towards your goals has changed at all. [Note: if you do not yet have a financial plan built, let us know sooner than later.  This tool is extremely important to ensure that you are getting the maximum return on life (ROL) and always moving towards your goals.  This is much more important than worrying about your return on investments (ROI)] I assure you that your probability of your plan success has not changed.  The reason is that the probability calculation takes in to account the possibility of wild short-term (and even mid-term) volatility already!  

 Volatility = Opportunity

You have heard this from me before…where there is fear and volatility in the short term, there is opportunity to buy things on sale for the long term investor.  We are always looking to see if volatility in certain asset classes creates enough skewing in a portfolio to provide a strategic rebalancing opportunity.  This pays dividends in the long run.  If you have cash that you have considered investing, pay attention.  If the volatility continues, you will have a unique opportunity to buy a good, long term asset at a discount.  

 Let me reiterate again…the best thing you can do for yourself is exactly nothing.  If your portfolio has been allocated correctly based on your time horizon and your risk tolerance, you are still on the right course.  Turn off the TV, ignore the pundits, and look around you…the air still fills your lungs too, just like it did yesterday, and the sun still rose the same this morning as every other day.  Life is good, so enjoy your weekend. We are always here to talk, so do not hesitate to call or email with any questions.  

 Josh