Expert Professional Advice

Zero cash (well, maybe not no cash, but the ability to avoid using your own cash)

Zero risk

Zero time (a systematic process after it has been set up)

Zero job related function

Books come out with bold promises all the time but promises don’t pay the bills. So while the advertising may be interesting, the content usually isn’t. If you are interested in this kind of enlightened way to wealth stuff then take a moment to send an email and get informed. I give out information all the time via a newsletter/e-zine/magazine. It could save you hundreds or thousands of dollars. There are so many so-called business experts offering products, but, if you could pull information from multiple sources and put it together, you could realistically know what they know without the hype and excessive fees.

8. Understanding the ebb and flow of the money cycle. It is so important to learn to accept that your own money will also have its ups and downs, no matter how carefully you plan… I see what the author is getting at; however, you reduce the compounding effect of your money when you have a losing year or period of losing years. Investment selection can be critical, the way to reduce that underperformance factor is to invest very early in life, meaning that compounding, even at a low rate is so powerful, it allows one to surpass having to save more later on in life. All you need is a steady return, your money should not have ups and downs, simply choose an investment that has a fixed rate of return and is not taxable to move ahead of those investors that prefer mutual funds. Suze Orman misses out on the main point of investing; time is your greatest asset, with enough time on your side you don’t have to worry about picking the best stocks or funds. Charles Schwab did a study of investments by asset class performance from 1972 to 2002 (to me that is not a sufficiently long enough period of time) which he published in his book. On page 82 of his book you will see that the most conservative combination of asset class, 50 percent bonds, 30 percent cash, and 20 percent stocks produced an average return of 8.7 percent, with the worst loss year of -1.4 percent. If you can get a guaranteed rate of return of around 7.9 percent with no risk to your capital you will be ahead of the majority of investors that allow their money to participate in down cycles. If you want to allow your money to be risked for a potential reward of one or two percent higher than a guaranteed return of around 7.9 percent you don’t understand the value of time or risk-reward. Don’t follow what Suze says, common sense should tell you that your best bet is to never have a losing year with your long-term investments. Why give Wall Street or professional money mangers a chance to take from you? What Suze will tell you in this chapter is: Please think about your entire financial history. All the worst things, how you felt, remember the entire sequence of events. I say, a steady return without any losing years takes full advantage of compounding and is better than losing investment capital. Capital that is lost must be regained with the luck of even higher returns.

9. Recognize your true wealth. True financial freedom lies in defining ourselves by who and what we are, not by what we do or do not have. I disagree, it cannot be disputed that a steady rate of return over long periods of time is a measure of true wealth… and achieving even a low rate of return is all that is necessary, but she goes on… We cannot measure our self-worth by our net worth. But this book alone will not make you financially free. I couldn’t agree more with that last statement. This book is a let down; it certainly doesn’t give me the energy to feel like He-Man and raise my sword and shout, “I have the power!”

5. Being respectful of yourself and your money.

6. Trusting yourself more than you trust others. She discusses an example of a client buying stock, IBM, and it went from $85, to $40, to $120. Some clients lost, some clients made money. She also discusses another stock example, $6, to $12, to $4. She goes into a discussion that it was the attitude with which the client went into an investment that helped to determine whether he or she would make money or lose money and stated that there are good investments and bad investments, but however solid the investment, the investor has to be solidly behind his or her investment as well. Did she make any of her clients rich? I don’t see any examples of that.

If the clients are rich already, they don’t need to make money from the stock market. That’s the difference when you have wealth. Also, there is only one reason to buy a stock; you are betting others will be willing to pay more for it. So while the client’s attitude changed as the stock went up or down, it was due to the fact that her clients had no protection, the stock purchases weren’t hedged, so of course if the stock price goes down the client will have some concern and be tempted to sell. If the client was properly protected it takes the pressure off, but without a system to manage the uncertainty of price changes, you’re likely to be stuck in an uncomfortable situation with an investment that you bought at a higher price now being offered in the market at a much lower price.

Investors tend to focus on returns and ignore the costs of investments. Investors do not understand how markets work and the difficulty to beat the market index consistently, even by a little bit. You cannot improve your returns by spending more time or money to pick funds or stocks. Paying annual management fees and other fees depletes your investment. Almost all actively managed funds fail to outperform the benchmark and most of them are tax inefficient. It makes no sense to buy regular mutual funds when you can buy index funds or ETFs that track the market index in which you want exposure. And if you don’t know which funds to place in a tax exempt or tax deferred account you’re mishandling your own investments. The book also discusses the irrelevance of analyst recommendations and investment newsletters with research to support that neither of them are viable methods to outperform the S&P 500.

It might seem like an ugly look at the industry but it’s what the insiders already know. You can’t win playing the game on their terms. The costs of implementing strategies, even promising ones are out of reach for non-professional investors. How many people do you know that can claim they got rich because of their mutual funds? Where are all the rich mutual fund investors? The companies make money selling you hope and false expertise. And if the expected long-term average annual return is 8% to 12% that mutual fund managers cannot consistently surpass, it almost seems foolish to risk money investing on anything unproven with them when you could simply go with an index fund. Better yet, find a less risky way to invest in yourself to generate a consistent return above the S&P 500. If you play the market as an average investor, it’s a sucker’s game… or you’re simply letting the industry steal from you.

Now we’re up to chapter six, the save yourself plan. The first month is about checking and savings. Open up a new checking account. Mentally, I like this approach of shifting toward a beginning as an action item, even though it’s nothing more than digging deep, balancing your checkbook each month, opening a new savings or money market account. It’s related as make it a goal to build up a savings account over however long it takes you to cover up to eight months of expenses. I like this idea because it represents a solid financial grounding during times of turmoil, which mentally will contribute to a sense of financial well-being because you’ll know you are ready should you ever need to access those funds which are in a separate account specifically for that purpose. Automate the process by using direct deposit into your savings account each pay period.

The second month will focus on your credit cards and FICO score. If married have at least one card in your name only, read the statements each month and check for mistakes. Always get payments in before the deadline. Get serious about unpaid balances and pay off or pay more than the minimum and transfer to a low introductory interest offer.

I will add my own money saving tip here: Stop buying books on improving your financial life. If you must satisfy your curiosity look at them in the bookstore or library and write down all you need to know; the most critical information on index cards. Financial principles don’t change, the authors just mix in a bunch of stories to illustrate points. None of the excess information may matter over the long-term, what matters is what you do, not what others do or have done in some feeble story (most of the stories aren’t prizes in themselves). I love the library, when you consume a thousand books a year at an average cost of $10 to $20 the savings are ten to twenty thousand dollars a year! Make it a point to absorb the info at the library – that is your work area. Avoid taking the books home where they get lost in the shuffle of your life. The priority is to obtain life changing actionable information and handle the priority when you pick up those kinds of non-fiction books. You won’t find much of it between the covers of any financial book with bold promises so you can condense any worthwhile information or financial principles onto index cards.