How Your Relationship Choices Might Dictate Your Money Habits

How Your Relationship Choices Might Dictate Your Money Habits

Writing for CNBC Money, Ester Bloom explains that it wasn’t her financial savvy that helped her save $100,000 for a new apartment while only earning $30,000 a year in New York City. Instead, she maintains, “the most important decision I made was to surround myself with like-minded people, both romantically and socially.” This is interesting. I’ve long known that the core tenets of financial success are simple: Be frugal; save money; and, invest your savings. But what if you’re in a relationship where a partner doesn’t share the same values of frugality, or what if your friends are always encouraging you to spend more? As Bloom asks, “What good is a minimalist mindset, after all, if you’re living with someone who eats out two or three meals a day? Eventually you too will succumb to Seamless.” There are really important aspects of finance and investing that we in the financial advisory business broadly understand to fall under the rubric of behavioral finance. I suppose this would be a good example of a behavioral finance topic. What fascinates me, however, is that it’s not just the individual’s behavioral patterns that have a bearing on one’s financial health, but also the behavioral patterns of those in one’s direct social circle. We often hear of the importance of emotional, sexual, and physical compatibility in relationships, but what about money compatibility? According to Bloom, money compatibility is paramount: This is what relationship advice-types mean when they say to make sure you’re with people who share your values. If you want to be an ant, don’t shack up with a grasshopper. Don’t even go out drinking...
How to Be a Successful Investor: Why It’s More Than Keeping Costs Low

How to Be a Successful Investor: Why It’s More Than Keeping Costs Low

  We regularly come across clients who follow an indexing investment strategy. Indexing is not necessarily a bad thing; we follow what one might call an enhanced indexing strategy for our own portfolios. Indexing is usually an investment strategy that is associated with keeping investment costs low and investing in an entire investment index. With that said, indexing—at least the way we often see it done by clients—is not enough to be a successful investor. While costs and holding a wide array of securities are important to a total investment strategy, there is more to being a successful investor than merely selecting indexes and avoiding expenses. Asset Allocation First and foremost, investors need to keep asset allocation in mind. A failure to properly allocate one’s portfolio is probably the most fundamental flaw we see investors make. We’ve all seen the pie charts that lay out sample asset allocation models (see sample, below). Contrary to what some might think, there’s actually a lot of academic research behind the idea of asset allocation. In fact, the fundamental ideas behind such pie charts resulted in a Nobel Prize being awarded to three economists in 1990, and their ideas still lay the academic bedrock for investment success. In our own practice, we spend a lot of time on our portfolios to ensure that they represent an optimal amount of return for a given level of risk. We also work hard to avoid unnecessary risk, and we pay a lot of attention to a portfolio’s Sharpe Ratio—a measure of risk-adjusted returns created by Nobel Laureate William F. Sharpe. Most portfolios are lacking important slices of the pie, or...
Active vs Passive Investing: Which to Choose?

Active vs Passive Investing: Which to Choose?

  Finally, I found an article that isn’t so biased against actively managed funds. According to Kiplinger’s Personal Finance, “The smart way to invest is to own both index funds and low-fee, actively managed funds.” This is a theoretical question with which we regularly have good discussions here in the office (for example, have you ever asked, “Does passive management even exist?” Choosing an index to track, for example, is in and of itself an active step that a mutual fund or ETF provider must take). Our position is similar to the one in the article: We believe in active and passive management. “In fact, said Ben Johnson of Morningstar, that’s how most Americans invest their money.” This adds an additional layer of diversification in terms of general method, adds another layer of manager theory and style diversification, and it helps manage volatility because active managers can employ strategies that help reduce the volatility that might be experienced with a purely passive investment strategy. For more on active vs passive investing, and to see which funds Kiplinger recommends, you can read more at...
How to Avoid Major Investment Mistakes

How to Avoid Major Investment Mistakes

Ireland’s Independent.ie offers the following helpful tips on how to avoid some of the biggest investment mistakes that we often see clients make. Pouring all of your money into one investment – such as the shares of one company or bank – can be dangerous. Should your investment take a turn for the worse you could lose a lot of money. Spreading your money across various types of investments should reduce the risk – particularly over time.   Be wary of investment fads or ‘get rich quick’ shares.   Although some people have made millions from such shares or products, others have lost millions too – and you could be the one to get burned if an investment loses its winning streak.   Review your investments at least once a year.   It is important to check how your investments are performing. You may need to consider moving out of a particular investment if it is consistently losing money.   Don’t make rash decisions, as these will often cost you money. Have a well-thought-out investment plan in place.   Understand the amount of risk that comes with an investment – and know how much of your money could be lost if that investment performs poorly.   Don’t invest your money in something if you’re not comfortable with the amount of risk that comes with the investment. Don’t invest in a risky product if losing some or all of your money would seriously affect your financial situation. When investing in shares or investment funds, there will be times when the value of those investments will plunge.   As long as you...
Tony Robbins on Trump’s Abandonment of Retirement Investors

Tony Robbins on Trump’s Abandonment of Retirement Investors

While I disagree with much of Tony Robbins’ approach to investment management in his 600-page tome Money: Master the Game, he gets just about everything right in his recent Fortune article about the Fiduciary Rule. With the Dow reaching record highs, Tony notes that “President Donald Trump’s plan to review the Labor Department’s fiduciary rule may be good news for Wall Street, but not for hard-working Americans saving for retirement.” I’ve written at some length about the Fiduciary Rule here, and I recently helped contribute to a NY Times article about it here. The gist of the Fiduciary Rule is this: Legal fiduciaries are obligated to put the needs of those they serve ahead of their own, but the Department of Labor found that the financial services industry often doesn’t do this. As a result, they proposed the Fiduciary Rule—regulation designed to ensure that consumers aren’t fleeced by overpriced financial products and conflicts of interests with financial advisors. About this fiduciary standard, Tony Robbins comments, I’m a fan of the fiduciary standard. Doctors and lawyers are legally required to do what’s best for you—why not your financial advisor as well? While most people assume financial advisors are registered investment advisors (RIAs), who are legal fiduciaries, it turns out that less than 4% of them are. As if this weren’t confusing enough, there is another class of RIAs, so-called dual-registered RIAs, who are affiliated with a brokerage and sell financial products for a commission. If the Fiduciary Rule goes away, what should consumers do? In addition to asking questions about fees, as Ron Lieber rightly points out in the aforementioned NY Times piece, consumers...