Years ago, when I commuted by train to New York City, I remember feeling powerless and frustrated by delays. I would feel my blood boil if there was the threat that I would be late. Once I accepted the fact that I was not in control of whether the train would arrive on time, and took responsibility for what I could change — my commute became downright productive. I left myself more time to get to the station; I took an earlier train so that even if it ran late, I would still be on time; and finally, I always kept work or reading material at the ready to utilize the time spent commuting in a productive way. Investing is a lot like the train ride. It may be unpredictable and you may get anxious, so what can you do to make the most of this experience, instead of allowing yourself to be swept up in frustration? Plenty; but to be effective you can’t get emotional and you can’t panic. Take this time to assess what you have been doing, and whether or not your strategy needs adjusting. Here’s a step-by-step plan to empower you in these unsettling times:
1. What do you own? It is surprising how many people have tens or hundreds of thousand dollars invested, and yet they are not sure what they own, or what their portfolio is designed to do. Looking at your asset allocation (how your investments are spread out in the investment arena) is quite important. In fact, Ibbotson Associates, a leading authority on asset allocation, found that 92% of investment returns are determined by the types of assets owned. Market timing (buying high and selling low) accounted for just 6% of returns, and individual security selection accounted for a mere 2% of returns. Meet with your financial professional and discuss how your portfolio is invested not just between the broad categories, like stocks, bonds, and cash, but more specifically in what types of securities. For example, stocks (ownership in a company) can be grouped by capitalization (size), as in large, medium, and small. Stocks can also be classified by style: growth stocks are those that are expected to grow quickly; value stocks are thought to sell for less than they are worth (a “marked down” item, so to speak). Stocks can also be domestic (US), foreign, global, or from emerging parts of the world economy. Bonds (a loan) also fall into many categories, and can be issued by the US Government (or other governments), corporations or state and local municipalities. Alternative type investments, such as real estate, oil, or gold also can play a limited role in a portfolio and act as a hedge. Make sure the mutual funds owned in all portfolios contain different types of securities, or you run the risk of weighting your portfolio too heavily in one area; a market correction in that area would affect your investment results twice as hard. If you are not working with a professional, now may be a good time to consider working with a fee-only advisor, because this analysis takes time and needs to be done thoroughly to consider and minimize investment risks. Also, your situation may have changed since you constructed your portfolio. Make sure your asset allocation strategy considers:
- Your time frame/goals;
- All investments in all accounts;
- Investment overlap in individual stocks owned and in mutual funds;
- Different asset classes (stocks, bonds, etc.), different market capitalizations (large, mid and small companies), different investment styles (growth, value) and different markets (US, foreign, emerging);
- Where the investments are owned (in a taxable brokerage account, or in a tax-deferred retirement account) because investing without being aware of potential taxes can result in “giving back” your returns in the way of taxes; and
- If the risks assumed are worth the potential reward.
2. What is it costing you? Having investments and not paying attention to the costs is a sure-fire way to handicap your potential returns. If two portfolios own the same investments (such as the S&P 500 Index), but one’s fees cost 0.20% and you own the other, which costs 2.35%, immediately you have reduced your returns substantially. In a volatile or down market, paying higher fees can make generating a reasonable return quite unlikely. Most important, though, is what you forfeit over the long-term when you pay high fees. As investments compound over time, the cost of high fees becomes more damaging. Let’s assume these two investments each returned 10%. After the deduction of fees, the returns are dramatically different: the high-cost investment returned 7.65% versus 9.80% for the low-cost fund. After many years, these fees would really impact your bottom line. If you invested $10,000 in each of these investments, after 30 years, the high-cost investment would be worth $91,289; and the low-cost mutual fund would be worth $165,222 – nearly $74,000 more than the high-cost investment. Of course, this example is hypothetical and does not reflect past or future results for any investment. Click here to read more a more in-depth discussion about fees.
3. What is your plan? Again, the power lies with you. Maybe you have left your investments unattended and the stock portion of your portfolio is larger than it should be. Maybe you have not left enough of a cash reserve to cushion the blows from difficult markets. Perhaps you would benefit from a gradual reallocation of your assets towards a more palatable allocation that won’t keep you up at night. Maybe you have kept too much in cash and are not earning anything and could benefit from buying low as opportunities arise in this volatile market. Again, sit with your professional and really go over your objectives, time frame and tolerance for risk (keeping in mind, of course, that an all cash portfolio guarantees you a negative return in this low interest-rate environment). It has been our finding in working with clients, that accepting 60% of the market’s gains is well worth the protection of declining 60% less than the market in times of trouble. We lean toward a more balanced portfolio allocation for our clients for this reason.
Remember, until you sell something, you haven’t lost anything. But looking for ways to buy low and adjusting your portfolio to assume less risk and to pay less in fees will certainly benefit your long-term results in a meaningful way. The control is yours to seize. You can choose whether to allow yourself to feel stranded, waiting for the train to pull in, or you can use this time to make sure you are ready to climb aboard when the opportunity presents itself.
We’re here to help should you need guidance: contact ATI Investment Consulting, Inc. at 631.675.1420.
If fighting about money has become a ritual in your household, you are not alone. Money is a leading cause of tension between couples. Before it goes too far, realize that you both have control of the situation. These steps can help you work together to fix your differences:
1. Know both of your money personalities and create a plan/budget that works. There are three basic money personalities: hoaders, splurgers, and avoiders. Understanding why you treat money the way you do, and gaining insight into how your spouse/significant other feels about money, will make it easier to manage your situation.
Hoarders love to save and bargain hunt. Because they fear that they’ll never have enough, spending money makes them uncomfortable. Luckily, they are happy creating a budget, because they enjoy keeping track of their finances. By putting “splurge money” into the budget they can learn to enjoy their money without worrying that they are spending too much.
Splurgers are happiest when treating themselves (or others). Spending makes them feel loved and successful. The danger is that they will spend far more than they bring home. Because they like to be rewarded, they too can benefit from putting a line item in the budget for reasonable splurges.
Avoiders lack the confidence to deal with money. They ignore their financial responsibilities, such as balancing the checkbook or researching their investments. Their greatest risk is missing opportunities to make their money go farther. And, if they are married to a splurger, they won’t realize that debt is mounting up until it is too late. The best strategy for Avoiders is to take a class or read up on basic finances. Creating a budget is the best way to get familiar with the situation they were trying so hard to ignore. Because Avoiders tend to procrastinate, setting up automatic bill payment and automatic investments (where money is wired from a bank account to the vendor or investment account) is a helpful strategy.
2. Discuss the division of labor. Make use of your natural talents and assign responsibilities accordingly. Maybe one of you is efficient at bill paying, but the other is better at balancing the checkbook. You do not need to do all the jobs together, as long as you both remain informed. The same goes for recordkeeping and investing.
3. Agree on the ground rules. Obviously, no lying and no concealing are mandatory rules. Another good one: large ticket items need to be discussed before purchasing. Just make sure you agree on what dollar amount constitutes a large purchase.
4. Make sure long-term goals are in synch. For example, if you have been a stay-at-home Mom, your husband may be counting on you returning to work. However, secretly you may be dreaming of setting up your own business. Make sure you thoroughly discuss where you both see your lives in the near future. Now is the time to work any long range goals into the budget (such as laying the groundwork for a business, career change or early retirement). Be very specific about what you want saved and by when. That is the only way you can see if you are making progress.
5. Communicate regularly. Even if one of you primarily controls the budget and bill paying, you both need to review what is going on. Make a monthly date to discuss your money.
Keep in mind, as you put together your budget, there needs to be a regular amount allocated to saving and investing. Work first on creating an Emergency Fund, and then fund retirement. Aim to save at least 10% of your income, then you can get started on college savings. Together, you can fix your differences and work towards shaping your future instead of your future shaping you.
Growing up in a large family, my basic financial needs were always taken care of but as for the extras — it was like a bakery: “Take a number and get in line.” It annoyed me and, at times, it embarrassed me when a friend had the latest and greatest gizmo and I did not. But, it also motivated me to find a way.
I remember getting my older brother to let me clean his room for money, I took local babysitting jobs, and the moment I was old enough to put in for my working papers, I did. Now my first job paid peanuts, because it was a “seasonal” job and didn’t have to pay minimum wage. So for $2.75 an hour, I worked at the local pool; but I was happy as a clam, because I was earning my own dough.
When I left for college, my parents paid the lion’s share and I took out the standard $2,500 government loan and paid all my expenses: books, entertainment, clothes, etc. A funny thing happened. Because I had earned money in the past, I wanted to earn again, and I did not want to have to ask anyone (even my parents) for money. So, I started tutoring for $10 an hour (nice pay raise)! And just as I was getting comfortable and into the groove the boom was lowered: my Dad was retiring and we were moving to Florida. He wanted me to transfer to a state school there. Immediately I knew I had to do something to stop this. I didn’t want to leave, but what could I do? That’s when I learned about becoming a Resident Advisor or “Den Mother.” This job would single-handedly pay my Room and Board and pay me a stipend, and provide me with a phone. Thankfully, I got the job — now I had to sell it to my folks. My father’s reaction was not at all what I was expecting. I thought he might be angry at the lengths I had gone to, to foil his plan. Instead he said that I had thought it through well, had planned it well, and clearly it meant a lot to me to stay where I was. I will never forget the look on his face: it was one of satisfaction. He had done his job well.
Tips for Raising Do-It Yourself Kids
1. Let them have skin in the game. If they want something big, let that be a motivator for them to earn and save their money. You can help them out, but let them “own” a piece of it. It builds confidence, pride, and encourages a work ethic.
2. Don’t let them think that you will always step in. If you practice the law of natural consequences, they will learn very quickly that their actions (or inactions) produce results (good and bad). If they know that they will have to live with these consequences they will tend to be less impulsive and make better choices.
3. Guide them out of the box. Give them creative ideas on how they can achieve their goal, whether it be how to earn extra cash, or how to find something at a better price. Show them how they can “make” their own solution.
4. Clap hands. When they rise up to the task, let them know how proud you are and how proud they should be.
5. Let their youth be an asset. Enthusiasm and energy are great attributes of youngsters. Harness it and direct it toward a goal and watch them accomplish wonderful things. Don’t discourage them with words like, “You’re not old enough.”
6. Build confidence. Let them know that if they want something badly enough they have the power to make it happen for themselves.
“What’s your goal?” My husband’s question was simple, but I didn’t know if I should bother to share my complete answer, because it seemed unreasonable.
We hadn’t started our family yet, which was a goal of ours. But I wondered if winning Lotto was the only ticket to my other dream: to be able to stay home with our kids for as long (or short a time) as I wanted. Back then, my earnings were almost five times his salary and I doubted we could sustain ourselves on his take home pay alone, especially with the added costs of a baby. Sharing this thought with him might have made him feel badly; instead it motivated him.
”That’s it? That’s the goal?” Tony said, as if he had known it all along. “OK, give me some time, I’ll figure it out.”
I had it drummed into my head from friends and colleagues around me, who were enslaved to the double-income household: “There’s no way you can live on one salary – especially a teacher’s salary.”
Quietly I worried that I had given him a goal that was not within reach. I thought, maybe I could stay home for a year at most. I even started to accept that option, if it came to that. Thankfully, it never did. The more naysayers there were, the more determined he was to make a viable plan.
Stock piling became the first part of the strategy; generating investment income was the other component. We lived as if his salary was the only income we had, and aggressively saved and invested my salary and bonus. That is not to say that we didn’t enjoy ourselves. We made time for some travel; we ate out at restaurants within reason – but the savings/investing came first; what was left over was ours to play with. We put off starting a family until we felt we were on solid ground.
An interesting thing happened along the way. We had the opportunity to buy a small cabin in New England for a great price; it was very tempting and we came close to doing it. It was affordable based on our total income; but ultimately it would have taken us off our goal. When another opportunity presented itself — to move farther from New York City (where I worked) to an area we loved and where we wanted to raise our family– we struggled with the idea. I didn’t want all our savings/investing to dry up because this house was more expensive than the one we were living in. After careful consideration of all the numbers, Tony figured we could swing it, provided I was still willing to commute an extra 2 hours each day until we started our family. With trepidation, I agreed.
Then we faced a series of unexpected events. For starters I became pregnant and soon we found out we were expecting twins. Almost immediately, I ended up on bed rest. Short-term disability gave way to long-term disability, which was less than my salary (although I wasn’t spending any money commuting). When our sons arrived a full two months early, we were stunned. After more than two weeks in the neonatal intensive care unit, they were released to come home – but with all sorts of equipment (like an apnea monitor to detect the cessation of heart beats or breathing and caffeine to keep the heart beat rate up). To add to all this tension, I had used up all my leave and was due back almost as soon as the boys came home from the hospital. I still can’t say how I would have been able to leave my babies under those circumstances – or who we would have asked to take on such a grave responsibility. I am just so thankful that Tony thought to ask the question about my goals – and that I dared to utter it out loud. Otherwise, our backs would have been against the wall.
Many times, there isn’t one right way to reaching a financial goal. Sacrifices, compromises, and non-negotiable items differ by household. The point is the goal kept us focused and shaped all the decisions we made – we passed up opportunities to spend our money in favor of getting us closer to what was our top goal. Most important, had we not planned this out, I would have been headed back to my four-hour roundtrip commute; our preemie babies occupying my every thought. Some call it luck – but I know Tony’s careful planning and our commitment to reaching our (seemingly unreachable) goal had a lot to do with the blessings that came our way.
Like any good plan, ours wasn’t stagnant. We realized that our journey had valuable lessons that could help so many others, and our businesses ATI Investment Consulting, Inc. and Real$martica, Inc. were born as a result. These businesses have become one more way that we, as a family, have been able to reach financial goals while having the freedom to remain true to ourselves.
The financial wisdom I would like to impart is: Don’t be afraid to look at your dreams – even if they seem impossible to reach. Instead of thinking about why you can’t get where you want to go, ask how you might get there. Pay attention to the gifts and talents you hone along your journey, and you may even find a second career. Do this, and down the road, you may find yourself being referred to as the “lucky one”.
September may be the ninth month, but for anyone with children, it feels like the start of school marks the beginning of the year. Why wait until January to make resolutions that you know will benefit you and your family right now? An added bonus is that you can get the kids on track by setting a good example. While each family has its own challenges, there is a common theme that most families struggle with: planning and organization. These two issues permeate every aspect of our lives and also greatly impact personal finances and household budgets. By taking steps in the right direction, you can start to feel more in control which begets calmness. Isn’t that a wonderful way to start the school year? Below are some of the most common School Year’s Resolutions and tips on how you can take steps in achieving these goals.
Getting dinner on the table while juggling extra-curricular activities and homework can often lead to poor choices (as in unhealthy and expensive take-out). TIP: The simple act of meal planning before you shop for groceries can greatly decrease what you will buy and what you will spend. Using the local flyer as your guide for sale items, make up a week’s worth of healthy dinners and lunches. Shopping with Pea Pod and other delivery chains may also save time and money, as old shopping lists are saved and a running tally of the grocery bill is ever-present. There will be time to gather your coupons, further reducing the bill. Whether you order on-line or physically go to the store, the one simple step of meal planning with the flyer will ensure you buy the best-priced items and will have ample food for all your meals. Furthermore, when you have a menu pre-set, you are less likely to pick up a pizza.
Organize Closets, the Garage and Pantries.
Wherever stuff lurks there is the potential to save a lot of money. How many times have you had to run to the store to buy something you know you have but couldn’t find (such as scotch tape, a hammer, a flashlight, etc.)? TIP: Group like items as you would in a store. You don’t need to spend a fortune on organizing supplies. Old shoe boxes, clear storage bags, over the door hooks and bags can all help consolidate items based on their use. Gift wrapping supplies, from scissors, tape, paper, bows, and generic cards can all be placed in one shopping bag; common household tools like measuring tape, flashlights, screw drivers and hammers can be placed in a box. Designate a space in the coat closet for umbrellas, hats, scarfs, and gloves so you are not left scrambling the first morning there is inclement weather. Don’t forget to extend this exercise to the food pantry, as well. Then you will know what you need (or don’t need) next time you food shop. When you are organized, less time and money will be spent by your household, guaranteed!
From school handouts, to artwork, to junk mail and personal files – paper piles up and things get lost. TIP: Set-up a binder book or expandable file for each child that will house the class contact list, book orders, assignments, handouts, invitations, and artwork that you want to keep (consider framing or hanging a bulletin board to post larger items). Toss junk mail as soon as it enters the house and get removed from mailing lists. Keep an eye on your financial files, as well. Here’s what to keep and what to shred:
- Keep only the current year’s payroll stubs, which can be shredded after you get your W2 and verify that your annual compensation amount is correctly reflected.
- Provided you do not need them to support income tax filings, bills and canceled checks that have already been reflected in your current bank statement can go after a year (exception: hold receipts indefinitely for warranty-items or large ticket purchases for insurance purposes).
- Bank statements. Keep the monthly statements for the year. After you file tax returns, hold on to any checks that relate to your tax preparations (housing/mortgage related expenses, payment of taxes, or business expenses) and your year-end statement. Get rid of the rest.
- Investment statements. For retirement accounts, keep records of all non-deductible IRA contributions to prove that you already paid taxes on these monies. Keep quarterly statements of all investment accounts and make sure the year-end statement matches up before disposing of the quarterly statements. Keep records of purchases and sales of securities for capital gain tax purposes.
- Taxes: Keep seven years’ worth of income tax records and supporting documents (receipts, checks, W2s, 1099s, etc.).
- Credit card receipts. Keep receipts to reconcile against your monthly bill. After verifying that the balance due is correct, shred all but those receipts you need for tax purposes.
- Housing Papers. Keep all documentations relating to the purchase or sale of property for at least six years after you no longer own it. Keep receipts pertaining to all household improvements for tax purposes.
Get in Balance.
Many parents and children are so over scheduled that life has become a series of running from one place to the next (which often results in a “drive-thru” dinner). Take an inventory of the activities and events your household participates in and decide which ones truly fit your family’s need for balance and recreation. Eliminating some may be a sanity-saver and a budget booster.
Making some small adjustments, such as these, can result in a less harried home life. When you know what you are making for dinner, and you know where everything is, there are far fewer last minute errands to the store. When the schedule isn’t jam-packed, you can actually enjoy dinner together and show your kids that down time is to be savored. When the precious commodities, time and money, are preserved, you will feel more in charge of your life and less a part of the rat race. Perhaps you’ll be inspired to stay healthy as a family, and use this found time to go for an after-dinner walk or bike ride. Your kids will function better in a calmer environment, and you’ll be more present to guide them through life’s daily challenges without all the distractions.
As they quietly learn from you, maybe, just maybe they will even be encouraged to make some resolutions of their own.
When I was a young girl, summer days had their fair share of running barefoot through the sprinklers and picnic lunches, but it was at the lemonade stand where I learned about the “real world”. My best friend and I would set up the stand on the corner of our street, make the lemonade, set the price (10 cents a cup), put out our sign, and bring the cash box out. We would chant to passerbys and attract as much attention as we could. It was there I discovered a lot about myself (I liked earning money), and a lot about economics and how business works. This summer, why not encourage your kids to set up a business they care about?
Several moms I know have turned their young children’s’ interests in to businesses that they run together (one sells her own handcrafted tutu designs on-line, and the other makes and sells beaded jewelry). Having hands-on experience running a business at a young age can really inspire your child to take their hobbies and passion to the next level. Even if it becomes just a passing interest, the lessons they’ll learn at the lemonade stand (or wherever) will be invaluable. Here’s what I learned all those years ago.
1. Make sure you like and trust your partner. Fighting can kill desire (and profit).
2. Find a partner with skills that compliment your own. My friend was good at promotions. The sign was pretty; she had a good personality and knew a lot of people. I was better at the business side of things, making sure that the lemonade and the cups never ran out.
3. Pay attention to outside forces working for and against you. The weather had to be right — if it was too cold or too hot then no one was out to buy. The rain killed business altogether. Obviously, things sell when there is a demand for it. Cold lemonade near a soccer field where there were games going on meant lots of sales.
4. Make sure your “lemonade” can hold its own with the competition. If you price it too high (and there’s nothing special or different about it) prospects will go elsewhere.
5. Know what you need to sell to break even. Setting a competitive, realistic price means first knowing what you need to make to pay for the entire inventory. If making a profit would mean pricing the item well above what people will pay for the good, then don’t bother selling it.
6. You can do it! The most valuable lesson of all was that I (at age eight) was capable of earning money on my own. Nothing felt better than that! It gave me such a rush of confidence that I was eager to go out and earn more money.
Make sure your kids get a taste of starting something up themselves and earning money from it, and they’ll reap rewards long after the “lemonade stand” has closed up shop.